Contract Design

Need Analysis

Identify the specific risks and losses associated with weather disruptions in the crop and travel spaces. In agriculture, potential risks may include crop failure due to insufficient rainfall or excessive heatwaves. For travel, adverse weather conditions like heavy snowfall could lead to flight cancellations and revenue losses for airlines. Understanding these needs is crucial for designing a comprehensive parametric insurance solution.

Risk Identification

Identify the weather events that pose the most significant threats to the insured parties. For instance, in agriculture, key risks may include insufficient rainfall leading to drought or heatwaves affecting crop yields. In the travel industry, risks could involve excessive snowfall or heatwaves that disrupt flight operations. Understanding these risks will help in creating relevant indices for triggering the insurance coverage

Define the exposure

Clearly outline the exposure to weather risks by identifying the crops and geographic locations involved, as well as the period of interest for insurance coverage. Specify the types of losses that the coverage should address, such as yield reductions, revenue losses, or increased operational costs due to weather-related disruptions.

Index Selection

Develop objective and easily verifiable weather indices that directly relate to the identified risks. For agriculture, indices like cumulative rainfall over a specific period or consecutive days of high temperature can be effective triggers. In the travel space, indices may include total snowfall or consecutive days of extreme heat. These indices must be designed to ensure timely and accurate payouts based on the occurrence of specific weather events.

Payout Definition

Select one of the two payout options which is suitable to defined needs and experienced losses:

Lump-sum Payout

Pays out a specified pre-agreed fixed amount if the trigger is breached. For e.g. $10,000 paid if total rainfall is less than 50mm

Linear Payout

The amount of compensation provided to the insured party is directly proportional to the intensity of the weather event. When the weather event reaches a specific level or threshold, the payout starts and increases in a linear manner as the intensity of the event grows. This ensures that the greater the severity of the weather event, the higher the amount of compensation received by the insured