Addressing residual risk through catalytic grants, parametric solutions, and behavioural change - CelsiusPro Group at Building Bridges 2024

We closed 2024 with a bang at Building Bridges 2024 in Geneva, where we hosted the panel discussion ‘Uninsurable? How the Natural Disaster Fund Contributes to Closing the Protection Gap,’ which gave participants an insider's perspective of how risk capacity provided by public entities can be effectively channeled to protect  communities vulnerable to climate and NatCat risks.

The panel, conformed by Bijal Brahmbhatt, Executive Director, Mahila Housing Trust, India; Stefan W. Hirche, Principal Portfolio Manager, KfW, Germany; and Daniel Stander, Deputy Chair, Resilient Cities Network, UK; was moderated by Kay Tuschen, Head of Climate Resilience Solutions, CelsiusPro.

A catalytic agent

They discussed how the NDF, managed by Global Parametrics (a CelsiusPro Group company) and funded by UK and German governmental entities, deployed committed risk capacity to protect vulnerable women in India against extreme heat waves.

The NDF is a catalytic agent, explained Kay. A promising insurance product pilot enjoys a grant-funded period during which the proof of concept is delivered. After such period, typically the product has not yet reached a critical point, and reinsurers are reluctant to provide the necessary risk capacity for local insurance carriers to be able to take on the product and scale it up. 

“This is exactly what we’re doing with the NDF,” Kay added. “As the product gains market acceptance, we expect to see the entrance of market capital that shares the risk as the product becomes commercially viable.” 

Addressing the residual risk

MHT provided education and training to their women members so that they understood how insurance works. They also worked on adapting risk mitigation against extreme heat. But residual risk remains-and MHT wanted to address it. 

“Most of these women are poor and work in the informal sector without any social security. They identified heat as one of the major risk they faced” because it led into loss of income and increased expenses, said Bijal.

“We approached Global Parametrics, a company of the CelsiusPro Group. That’s how the parametric heat insurance product came into being, with risk capacity provided by the NDF,” said Bilal.

As a risk financing vehicle funded by governmental entities, “the NDF offered the opportunity for Germany’s KfW to invest into mitigating residual risks from climate change effects, and assist in closing the protection gap,” explained Stefan.

Fostering behavioural change

Climate change drives the need for sustainable risk financing products. But a change in behaviour is required too, highlighted Daniel. Easier said than done, especially when an insurance product pays outs in its first year — which may prompt insurance companies to not scale-up a product perceived as loss-making.

“The key is not only that it pay outs, but that through the (insurance) contract there are incentives to drive behavioural change, for example encouraging MHT’s women members to take responsibility for their thermal well-being,” Daniel explained.

Promoting parametric risk transfer

Through the NDF, German and UK governmental entities have been able to support parametric risk transfer solutions that protect communities exposed to extreme weather and catastrophic events in countries across the Global South. 

“That’s something we couldn’t do ourselves, we needed a trusted partner in the insurance space,” Stefan said. “We’re very proud to work with pioneers in parametric insurance such as the CelsiusPro Group, and also Hannover Re, in showing the potential of using parametric solutions for transferring (climate and NatCat) risk out of developing countries and into global reinsurance and capital markets.”

White paper explores link between regulation and adaptation

At Building Bridges, we launched a new white paper: Bridging the Climate Protection Gap: Integrated Approaches in Adaptation and Risk Management.

The paper explores how regulatory frameworks and insurance can accelerate the take-up of climate adaptation measures, explained Samuel Brown, Head of Climate Risk and Insight Solutions.

“The paper examines the intersection of these elements from the perspective of regulatory requirements, risk and scenario analysis, and the role of insurance and innovative financial products such as parametric insurance,” Samuel added.