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A good or a bad season can make the difference between success and failure in the wine trade, acknowledges Gabriel Gross, president of insurance and reinsurance broker Meteo Protect (Paris), and an admirer of Burgundy. Many other industries are vulnerable to irregularities of precipitation, temperature and wind, but insuring them can be difficult. Meteo Protect can provide protection to even small clients through its weather hedging solutions that depend on SAP’s (Walldorf, Germany) HANA in-memory data management platform to process vast amounts of weather data in real time.
Meteo Protect began as brokers focused on parametric underwriting—which indemnifies policyholders based on the occurrence of specified conditions rather than through a claim on a loss event—and discovered that it was really a reinsurance market, according to Gross. “It was organized in such a way that whenever a client needed a solution, it went from a broker to a reinsurer. However, the reinsurance companies are not organized to handle smaller individual clients,” he says. “The cost of the transaction is extremely high.”
Meteo protect approached reinsurers, asking them to share their pricing strategies and now works to price solutions for four of them. “Whenever we have a client who needs weather hedging, we have a process to give indicative pricing for all the simulations the client requires,” Gross relates. “At the end of the process, we get authorization from a reinsurer or a fronting company, typically a Lloyd’s syndicate or a large insurer.
Gross summarizes Meteo Protect’s service as providing parametric contracts that pay out when specific anomalous weather conditions are recorded—for example, excessive rain or temperature over a specified period of time. “Our expertise is the relationship between the weather and money, and we exercise it in two ways: first on how weather impacts clients and secondly on establishing the cost of transferring the risk,” Gross explains. “We find the link between weather anomalies and financial performance, and we design the insurance contract.”
To be able to perform that service, Meteo Protect has assembled massive amounts of weather data from multiple sources. “We have put that data into HANA, and we have built software to analyze the climate change impact of risk on clients in order to price each customized set of parameters,” Gross says.
What we have done is we have put together a massive amount of weather data from other sources, and put into HANA and we have built the soft to analyze climate change impact on risk of client, in order to give a price to each customized set of parameters. Whatever the size of the client, Meteo Protect must reconstruct decades of weather history, model many scenarios—and that takes a great deal of computing power. “The price of premium of course is a major element of the proposition, so we need to be able to produce as many simulations as the client needs Gross elaborates. “We can do that in real time with HANA, which enables us to sell parametric insurance to small clients.”
Meteo Protect enables insurers to sell white labeled insurance products to customers of all sizes in the many businesses and government entities that can be affected by weather. Farmers are among the more obvious customers, as their crop yields can be affected by low or excessive rainfall, extreme temperatures and other weather events, such as hailstorms. However, the list of industries potentially affected is long, including businesses as diverse as coastal hotels who have a bad season due to inclement weather, or hydroelectric producers who have lower yields when scant rainfall reduces the flow of rivers through their turbines.
Industry and Geographic Diversification
In order to spread risk across its portfolio it’s important for Meteo Protect to achieve a high level of diversification of both geography and industry, according to Gross. Meteo Protect has many clients in Europe and North America and is expanding in those geographies and Latin America, as well as being available to U.S. farmers later this year. “The only geographic limitation we face is related to regulatory issues—countries where we’re not permitted to sell insurance,” Gross notes.