Climate change & Co

Let us take a practical example. An energy supply company in Europe classifies winter storms as a major risk to its power lines. Strong winds may not only cause direct damage to the distribution network, but also uproot whole trees or break off branches which then fall onto the (power) lines.

The client was searching for efficient protection for its nationwide low-voltage distribution network. The risks for power lines were practically not insurable with traditional insurance solutions. The client was also keen to avoid any uncertainties with claims processing (due to it being difficult to estimate the costs for the reconstruction and upgrading of the network) and to ensure that quick payment was made in the event of a claim.

The parametric insurance solution enabled the client’s wind risk to be covered. An index was developed in close cooperation with the client, which describes the damage as a function of the measured peak wind speeds. As the wind data is calculated independently and is available quickly, the client can expect the claim to be dealt with fast and simply in the event of an incident.

As there are sometimes large sums of money at stake, many industries are actively looking for more innovative risk transfer options to protect themselves against the increasing threat caused by weather-related damage.

Technology and data are a considerable part of the solution here. Weather stations and measuring instruments provide clear and independent information on wind conditions. Along with the historic data from these measuring stations, the information is structured as a customised payment formula in order to depict the underlying risk in the best possible way.

The data from the measuring stations is aligned with predefined triggers determined in cooperation with the client in order to define the time and amount of the payment.