Adverse weather remains a leading cause of scheduling delays in the construction sector, with annual costs in the billions in the United States alone. For construction lenders, effective management of credit risk necessitates securing comprehensive insurance coverage to safeguard against these weather-related challenges. 

Understanding the Vital Role of Insurance in Construction Financing

Project financing has emerged as a crucial means for funding large-scale construction developments and infrastructure projects, facilitating the realization of infrastructure projects that might otherwise not have been possible through conventional funding avenues. Yet, securing project financing necessitates a meticulous evaluation of risks and a clear comprehension of exposure to preempt non-payment—a paramount objective for all investors and lenders.

From the perspective of lenders, insurance serves as a critical tool in mitigating the inherent risks of construction projects, providing a safety net that ensures their investment is protected against unforeseen events throughout the construction lifecycle.

How Parametric Solutions Can Help Lenders & Investors

Parametric insurance is capable of standing alone or complementing traditional insurance offerings. It emerges as a transformative solution to the risk transfer challenges confronting the construction industry, adept at filling coverage gaps left by traditional insurance. Complementing traditional insurance, parametric solutions can mitigate risks such as extreme temperatures that cause project delays and are not covered by major insurers.  Additionally, they serve as a supplementary layer of protection for perils often underinsured due to dwindling insurer capacity, like hail damage, particularly for projects located in high-risk regions. 

Parametric insurance is triggered by predefined parameters, such as the magnitude recorded at the site of the insured, providing quick and transparent claim settlements, with no need for on-site claim adjustments. 

Unlock the simplicity and efficacy of our construction insurance solutions today. Download our Construction Lender’s Factsheet to explore the transformative potential of parametric insurance.

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As the frequency and severity of hurricanes increase season after season, the rising sum of insured losses is increasing pressure on price and capacity availability for corporate insurance programs across the United States and around the world. It’s more important than ever to continuously develop alternative insurance solutions suitable for a volatile climate and tailored to meet the specific needs of vulnerable industries like hospitality, construction, renewables, and property.

This is where Descartes’ bespoke parametric hurricane insurance solution steps in. With predefined payout amounts and trigger thresholds, our products give clients access to liquidity through a swift claims process and protection for assets not covered adequately by traditional insurance policies. 

To help exposed clients like food & beverage providers, contractors, solar farm operators, or property owners better understand how our hurricane cover leverages data and the latest scientific research to assess the risk, we have outlined everything there is to know about our innovative solution in our hurricane insurance product sheet.

As more companies switch or complement their traditional cover with parametric insurance, understanding what exactly happens in the event of a hurricane can be challenging to grasp fully, but we have you covered. 

Want to find out more? Check out our hurricane insurance product sheet today. 

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2023 saw severe convective storms rack up high losses in the United States alone, where insured losses exceeded $50 billion for the first time on record. What’s more, the year had several notable tornado outbreaks, where the Central Tornado Outbreak that occurred in late March caused $5.7 billion. 

As the frequency and severity of tornadoes increases year over year, understanding the vulnerability of businesses’ assets and supply chains is crucial to ensuring business continuity in the face of disaster. Tornadoes are highly concentrated weather systems that can cause devastating physical damage and business interruption. Industries like renewable energy, manufacturing, and healthcare are particularly vulnerable, and require insurance solutions that are tailored to meet their specific needs. 

This is where Descartes’ bespoke parametric tornado solution steps in. With predefined payout amounts and trigger thresholds, our products give clients access to liquidity through a swift claims process, and protection for assets not covered adequately by traditional insurance policies. 

To help exposed clients like solar farm operators, manufacturers, healthcare providers or public entities understand better how our tornado cover leverages data and the latest scientific research to assess the risk, we have outlined everything there is to know about our innovative solution in our product sheet. 

As more companies switch or complement their traditional cover with parametric insurance, understanding what exactly happens in the event of a tornado can be challenging to grasp fully, but we have you covered. 

Want to find out more? Check out our tornado product sheet today. 

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Year after year, hurricanes remain as one of the costliest natural disasters.  Around the world, economic loss due to major hurricanes continues to be one of the most devasting perils on record since the start of the 21st century. Among the 363 weather disasters exceeding a billion dollars in damages since 1980 (as of August 2023) in the United States, hurricanes have accounted for over $1.3 trillion in total damages. On average, each of these events has incurred costs of approximately $22.8 billion. 

Corporates and public entities exposed to hurricanes encounter significant expenses in the aftermath of these storms that range from damage related expenses to non-damage related, such as business interruption that causes revenue loss. Many of these costs remain unaddressed by conventional insurance policies, resulting in coverage gaps or uninsured losses. As the frequency of insured losses continues to rise, often leaving approximately half of the losses uncovered, there is mounting pressure on both prices and capacities within the traditional insurance market

The Impact of Hurricanes

Hurricanes are hugely destructive weather events that produce rainfall– induced floods, storm surges, strong winds, and even tornadoes. In the United States, the Atlantic hurricane season is one of the main coastal areas where hurricane activity occurs and causes highest financial losses, resulting from mostly wind damage, as well as economic loss from the business interruption that occurs as a result of major hurricanes. 

Perhaps more than any other peril, hurricanes have the capacity to inflict damages totaling hundreds of billions of dollars within a matter of days. Just 2 years ago, Hurricane Ian struck Florida at Category 4 intensity resulting in over 112 billion in damages, marking it as the costliest hurricane in Florida’s history and the third-costliest in United States history. Such events highlight the threat potential of a single hurricane hitting densely populated coastal areas. 

Traditional Insurance Challenges and the Emergence of Innovative Solutions 

The rising sum of insured losses due to tropical cyclones and hurricanes around the world is putting increased pressure on prices, deductibles, and capacities available within traditional insurance. As budgets and market capacity tightens due to continued global hardening, pressure is mounting on corporate business and public sector clients to spend premium dollars as effectively as possible. New innovative risk transfer solutions, such as parametric insurance policies, are desperately needed to fill the widening coverage gap in vulnerable regions around the world.

The Benefits of Parametric Insurance

Parametric insurance coverage has emerged to offer access to new sources of capacity worldwide, delivering prompt payouts when companies need it the most. Through extensive use of data for pricing, parametric hurricane insurance can radically simplify storm insurance, eliminating embedded costs and reducing the amount of time required to quote and bind a policy. Claims settlement is agreed in advance which allows for rapid disbursement of cash to businesses and communities facing insolvency in the wake of extreme weather events. This immediate infusion of capital helps prevent lasting economic impacts.

Descartes Parametric Hurricane Solutions

Descartes offers two parametric hurricane solutions, designed and structured as “Cat-in-a circle” or “Wind speed at location”, leveraging the latest scientific research to assess hurricane exposure and design bespoke covers for our clients. Find parametric protection ahead of hurricane season – Descartes’ parametric insurance offers protection against both property damage and loss of revenue to business interruption following a named storm.

Want to find out more? Fill out the form to download our latest Hurricane Whitepaper.

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The future of the sports industry is already feeling the pressure, as half of the former Winter Olympic host cities may be unable to sponsor the Winter Games by 2050 due to a lack of snow and ice. The cancellation of the 2023 Formula 1 Emilia-Romagna Grand Prix due to the heavy floods is another clear example of heightened exposure. The global sports market is approximately worth $756 billion annually, yet its vulnerability to global issues like COVID-19 and the climate, means that at least $12 billion is wiped from sport’s collective balance sheet annually, according to an ESPN study.  

Adverse weather-related business interruptions are often excluded from conventional insurance policies. As the climate and risk landscape continue to evolve, the sports and entertainment industries face an uphill battle with reduced windows for scheduling outdoor events, more restrictive terms and conditions, as well as increased premium pricing in the traditional market. 

This is where Descartes’ parametric solution for event cancellation can step in, covering for weather induced damages,  increased expenses, loss of revenue or profit. What’s more, Descartes’ event cancellation coverage can pay the extra costs incurred by the insured to prevent the postponement, cancellation, or interruption of an event for any unforeseen circumstances. 

The bottom line is that anyone participating in a sporting event has a financial interest at stake, including ticket goers, team owners, venues, sponsors, caterers, event organizers, and merchandisers. Descartes’ parametric adverse weather or Nat Cat solutions ultimately offer fresh capacity, flexibility, and transparency to meet the tailored needs of the sports and entertainment industry.

Check out our risk brochure to discover how Descartes’ parametric event cancellation policy protects the sports & entertainment industry in the United States and around the world.

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February 11-20, 2021: While The Great Texas Freeze, also known as Winter Storm Uri, was not the most severe cold snap in the state’s recorded history, it still caused a billion dollars worth of damages, significant fatalities, and state-wide blackouts that took a substantial financial toll on Texas residents and wholesale energy producers. A freezing event like the Great Texas Freeze was believed to be a rarity, yet Winter Storm Elliott (2022) followed just a year later.

How climate change is affecting winter storms in Texas

The Great Texas Freeze began at the beginning of February, when the air in the atmosphere above the Arctic warmed suddenly, causing a weakening of the polar vortex, a collection of winds that keeps cold air at the North Pole. This phenomenon allowed these cold winds to spill into the temperate regions of Asia, Europe and North America.

One key factor of the brutal cold that surrounded the state of Texas was the high negative Arctic Oscillation (AO), a back-and-forth shifting of atmospheric pressure between the Arctic and the North Pacific and North Atlantic mid-latitudes. The AO influences weather and climate in North America, Europe, and Asia, making the most impact during winter. A high positive AO can affect the powerful mid-latitude jet stream to move storms northward, reducing cold air blasts in the mid-latitude regions. A weaker jet can dip further south with a negative AO, enabling Arctic air outbreaks into the mid-latitude regions.

Another element at play in the cold air outbreak was the polar vortex. A polar vortex extensively covers low-pressure and cold air surrounding Earth’s poles. When the polar vortex is strong and stable, the polar jet stream shifts northward, causing the cold air to remain in the Arctic. When the vortex weakens or is disrupted, the jet stream often becomes extremely wavy, allowing warm air to flood into the Arctic and polar air to sink into the mid-latitudes.

During the worst of the storm, 157 million people across North America were living under extreme winter storm warnings or weather advisories. Due to the power supply damage, the cold highlighted the need for grid modernization, particularly in Texas.

Why Energy Producers in Texas are highly vulnerable to extreme weather events

Texas is the only state in the mainland United States with a fully independent electrical grid, meaning it does not connect to other power grids across the country. As a result, the energy supply across the state is less regulated and more isolated. 

Consequently, 48 percent of the power generation capacity was completely offline when the Great Freeze hit Texas. Electricity demand soon exceeded supply, where energy companies that buy their energy wholesale – as it’s highly affordable due to the deregulated, market-based system – suddenly saw a significant price increase in wholesale energy. Many energy producers had to pay out of pocket without insurance, inevitably taking a massive hit to their revenue.

Traditional insurance solutions depend on physical damage

Most property insurance policies require “physical loss or damage” to the insured property as a condition of coverage. For most property damage claims, this condition is clearly met if the insured property is damaged by water, snow, ice or wind.

However, several events, such as extreme cold and subsequent power and utilities interruptions, may not cause direct physical losses but can still significantly negatively impact earnings, exposing financial and operational risks.

While such events can cause massive damages, they tend to be complicated or expensive to mitigate and are often not covered by traditional indemnity insurance solutions.

Parametric Insurance: An alternative insurance solution against Winter Storm

Through extensive use of data for pricing, parametric insurance radically simplifies the process, from underwriting to claims handling. The transparent, objective and non-ambiguous nature of a parametric trigger removes the need for any traditional loss adjustment process and, in general, increases the efficiency and effectiveness of the insurance program.

Perhaps the most significant benefit of parametric insurance in the wake of extreme cold weather, as experienced in February 2021 and December 2022  in the US, is that it is not based on material damage alone. Parametric policies cover revenue losses regardless of whether physical damage occurred or not, thus protecting against the bulk of financial losses arising from wholesale energy price spikes, power cuts and infrastructure shutdowns.

Check out our success story to discover how Descartes’ parametric risk transfer solutions protect energy producers’ balance sheets in Texas and beyond.

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Parametric insurance can be a valuable solution for asset management companies looking to manage and mitigate their climate related exposure.

Descartes’ parametric insurance solutions offers innovative balance sheet protection, applicable to any economic loss, including non-damage business interruption such as: indirect losses of revenue, contingent BI, lack of access, and others.

Benefits Of Parametric Insurance for Asset Management Firms

Asset management firms can reap numerous advantages by incorporating parametric insurance coverage options into their risk management and investment strategies. Some of the key benefits include:

Value Preservation through Tailored Coverage:

Descartes ensures the protection of debt-loaded investments. Unlike traditional insurance, which can take an average of 18 months for indemnification, our parametric cover provides swift payments following a triggering event, often within the same quarter, securing your investments swiftly.

Enhanced Yield & Stability:

For asset managers holding agricultural assets, Descartes collaborates with clients to develop customized solutions tailored to their specific exposures, crops, and locations. We insure a broad range of yield variations against the full spectrum of climate risks to ensure a more stable income stream.

Data-Driven Agility & Liquidity:

Leveraging advanced technology and machine learning, we offer real-time monitoring of policy thresholds. This eliminates the need for a lengthy and costly claim process, along with any on-site loss adjusters, providing enhanced agility and liquidity.

Hedging Strategies:

Parametric insurance can serve as an effective hedging tool against risks that could impact asset values and the investor or company’s balance sheet. For instance, if an asset manager holds real estate properties in flood-prone areas, they can use parametric cover to hedge against potential losses caused by flooding.

Portfolio Diversification:

By including parametric policies that cover natural catastrophes and extreme weather events unrelated to traditional financial markets, asset managers can reduce the overall risk exposure of the portfolio. By spreading risk across multiple assets, multiple perils over multiple territories, asset managers can have more certainty against peak risks.

Descartes Underwriting’s Parametric Insurance Solution

Descartes Underwriting works with asset management firms to provide a structured and transparent approach to their risk management and transfer needs, allowing funds to enhance risk management strategies, protect investments and increase returns for investors.

For more in-depth information about how parametric insurance can revolutionize risk management for asset management companies, check out our factsheet.

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Following the Paris Agreement in 2015, countries agreed to decrease coal powered production significantly, eradicate insufficient fossil fuel subsidies, and ultimately work to ramp up the deployment of renewable energy rapidly. Current commitments leading up to 2030 would put the world on track for a 2.4 degree Celsius rise in average global temperatures; making revisions of targets is an utmost priority to create a Paris-compliant policy pathway.

Meanwhile, India has set up strong ambitions for climate change mitigation by pushing for rapid deployment of renewable energy sources, with wind power being crucial. India contributed 6% of the global GHG emissions in 2022, and power generation accounts for 64% of its energy sector emissions.  Notably, the energy sector contributes to  73% of the country’s total GHG emissions – making wind energy vital to India’s clean energy transition. 

Amidst the race to meet net-zero targets, the growth of wind players across India has been substantial, particularly as the country’s monsoon season between June and September makes the country optimal for wind production. The prime time typically ensues wind speeds ranging between 23 and 29 kilometers per hour, which fuels wind turbines to generate electricity. During the monsoon season, two-thirds of its total wind energy is generated. 

However, renewable wind energy operators and investors across India have seen an unprecedented drop in energy production in the most recent years Annual wind speeds and wind energy production are trending downward during the past two decades: the 2020 season showed the slowest wind on record at an average wind speed of between 20 to 27 kph, making it the lowest in 100 years. According to the IITM, as climate change intensifies, India’s wind potential is expected to slow down over North India. 

This introduces an immense strain on wind farmers’ revenue flow as enduring a poor wind season causes significant drops in production. Moreover, the traditional market does not cover revenue loss driven by wind power volatility, leaving clients and their balance sheet completely unprotected. Without a solution in the traditional space to insure against the unpredictability of renewable revenues, stakeholders ranging from operators to developers and financiers are left absorbing the gap when wind yield impacts revenue flow.

With Descartes’ expertise in modeling the realistic behavior of annual wind speeds and designing a parametric insurance cover based on wind turbines’ specific power curves, wind manufacturers across India and the globe can have peace of mind that their coverage will respond as intended, mitigating the largest risk a wind producer may face – revenue loss. Descartes’ parametric solutions ultimately offer a financial hedge against wind yield volatility through a straightforward, index-based solution that triggers based on objective, third-party data.

Check out our case study to discover how Descartes’ parametric insurance cover can protect a wind farm operator’s balance sheet in India.

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Climate change is projected to make wildfires more intense and frequent, with a global increase in extreme fires of up to 14% by 2030. The United States experiences many wildfires, where 2022 saw 66,255 wildfires across the region, the highest number in 10 years. A particularly wildfire-prone region in the United States is California. 

California contains the highest number of properties at risk to wildfire due to its extensive size and Mediterranean climate. In 2022 there were five severe wildfire events in California, 3 of which surpassed over $151 million USD in economic loss.

Vulnerabilities in California For High Value Properties

California, with its picturesque landscapes and thriving vineyards, is a magnet for luxury property owners and hospitality businesses alike. However, amidst the allure of wine country and scenic mountain retreats lies a stark reality: the constant threat of wildfires. For hospitality clients, such as resort owners in Napa Valley and beyond, this poses a significant risk to their valuable assets and revenue streams.

Moreover, the wildfire risk extends beyond wine country to encompass luxury properties nestled in the expansive mountains of Los Angeles and Santa Barbara. These properties, often sprawling over vast acres of pristine land, are especially susceptible to wildfires. The combination of high elevation and remote locations amplifies the challenges of wildfire prevention and containment, leaving these properties exposed to substantial damage and loss.

As California’s wildfire risk continues to evolve, traditional insurance carriers have responded by reducing wildfire sub-limits and increasing retentions, leaving clients financially insecure due to limited and expensive coverage.    

In such a landscape of heightened risk and limited coverage, it becomes imperative for property owners in California’s high-value regions to seek robust and tailored insurance solutions to safeguard their investments and livelihoods against the unpredictable forces of nature.

Parametric Wildfire Insurance: A Secure Alternative

Descartes’ parametric wildfire insurance cover, offers fresh capacity to exposed clients needing full financial protection and capacity in the United States and globally. Descartes’ bespoke and customizable parametric covers provide security and consistency in an unstable traditional market.

Check out our case study to see how our parametric cover can provide fresh capacity for exposed hospitality clients in the wildfire-prone region of California. 

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Amidst climate volatility, forest fires have become a major concern on nearly every continent. In 2022, this phenomenon struck particularly hard in the USA, France, Morocco, Russia, Chile, China, and Australia. Though the Bureau of Meteorology (BOM) points to a weakening of La Niña, there are also signs of an emerging El Niño. The impacts of El Niño are particularly concerning as it causes hotter, drier weather across most of the region, heightening the risk of wildfire. 

The summer bushfires of 2019-2020 were particularly violent, costing Australian agriculture between A$4 billion and A$5 billion, including $1.3 billion in insured claims. However, many timber companies issuing carbon credits were left uninsured. What’s more, in the case of a bushfire, the loss of timber value is only covered by traditional insurance. However, the financial loss of carbon credits or the replacement value of timber is not.

Descartes’ parametric insurance uses predefined triggers to accurately measure potential financial losses from bushfire driven carbon credit inventory impacts, as well as reforestation costs. This tailor-made, data-driven coverage ensures transparency and reliability, as the client has peace of mind they will receive their payment following a wildfire event. 

Check out our case study to discover how parametric insurance secures TIMOs’ carbon credit revenues and timber value.

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