Forgive the pun, but the use of an exciting new tool, Parametric Weather Covers, deserves attention by the decision makers of those community foundations and family offices considering using social-impact investments to mitigate the financial effects of severe weather events.
Social-Impact Investments provide capital infusions into companies, organizations, and managed funds whose intention is to generate positive social and environmental impact with a modest financial return.
Parametric Weather Covers directly addresses the largest impediment to social-impact investments success: uncertainty.
If 2017 taught us anything, it would be our inability to adequately predict and prepare for the vagaries of climate-related disasters.
The latest estimated costs from the unexpected arrival and ferocity of 2017’s three major hurricanes total $265 Billion. It is not hard to understand how coupling the hard costs of 2017, with the projected 2018 costs for natural peril risk, have placed community foundations and family offices at a disadvantage in finding the means to meet all necessary obligations.
Out with the Old
The old means of disaster protection was the use of traditional, indemnity-based insurance. Two weaknesses become apparent to anyone who has ever dealt with these policies:
- Coverage of damage to assets and indemnification is based on specific losses subject to policy conditions, i.e., deductibles, exclusions, sub-limits, delayed payments, adjustor bias, etc.; and
- Business Interruption Coverage is triggered only as a direct consequence of physical damage to the property insured.
And in with the New
Parametric Weather Covers (PWC) are a type of insurance that provides a structured payment upon the occurrence of a triggered weather event or condition (temperature, wind, rain, snow).
For example, a large, community foundation in Central Florida has created a pilot program with WX Risk Global to use a Parametric Hurricane Cover (PHC) to obtain these benefits:
- The PHC is broad and covers all direct and indirect physical damage and any expense associated with the event.
- Wind footprint data is provided by a Third-Party Independent Data Provider.
- Quick-loss payment in 30 days or less from the date of the hurricane event gets cash to your members rapidly for post event response expenses and crisis management.
- There is no dollar-based deductible.
- Provides cover for under-insured and uninsured risk.
- Simple, transparent claims process with no adjusters nor attorneys.
Too Good to be True?
As with all groundbreaking ideas introduced into the mainstream, skepticism is required, and even recommended.
But the means to mitigate unexpected and excessive disaster-related expenses has arrived. It is your responsibility as fiduciaries to investigate Parametric Weather Covers and how their use can protect your Foundation or Family Office.
Dagda Partners was founded to pursue sustainable, social-impact investments and to provide investors with the necessary tools to select partners compatible with their risk and return criteria.
As a Dagda Certified Social Impact/Sustainable Company, Wx Risk Global is committed to providing knowledge and access to the weather-risk industry for the construction of the most effective weather-risk solutions available to everyone.
– Wx Risk Global Team