Parametric insurance

Extreme weather is no longer a rare disruption; it’s an inevitable financial reality for offshore wind and oil & gas. Storms, high waves, and heavy winds can wipe out 15-30% of operational time, delaying projects, inflating costs, and triggering penalties. Parametric Weather Downtime Insurance (WDI) is reshaping how offshore risks are managed; triggered payouts based on actual weather events, not slow claims processes.

Parametric insurance provides coverage for predefined events such as earthquakes, adverse weather conditions (including cyclones, floods, wind speeds, and wave heights), and power outages. Unlike traditional insurance, which compensates for actual losses incurred, parametric insurance offers a payout based on the occurrence of a specified event. This means that once the trigger event meets or exceeds the predefined threshold, the insured party receives a fixed payout, regardless of the actual damage or loss experienced.

Parametric insurance is designed to cover events that are random and can be accurately modelled, such as wind speeds, wave heights, and water levels. This type of insurance protects businesses by capping costs and transferring the risks associated with these unpredictable events to insurers. By relying on predefined parameters, parametric insurance ensures that businesses receive timely payouts when the specified event occurs, helping them manage financial exposure and maintain stability in the face of potential disruptions. This approach not only provides a clear and efficient claims process but also offers a strategic way for businesses to mitigate risks and safeguard their operations.

Parametric insurance offers several advantages, making it an attractive option for businesses. By limiting exposure to weather downtime, it enables competitive pricing in tenders, helping companies secure contracts more effectively. The fast payouts ensure liquidity after triggering events, providing immediate financial relief and stability. Additionally, the risk transfer allows companies to operate with fewer disruptions due to unpredictable weather, ensuring smoother operations and reducing the financial impact of adverse conditions. This combination of benefits makes parametric insurance a strategic tool for managing weather-related risks efficiently.

Offshore weather downtime: insurance pays out when wind or wave conditions prevent a ship from operating.

High-low river water levels: covers additional costs due to low water levels that affect shipping.

Voyage deviations: covers additional costs due to adverse weather delays during (project) cargo transport.

Tow shelters: covers costs incurred when a tow voyage needs to take shelter due to adverse weather conditions.

The payout mechanism of parametric insurance is designed to provide swift financial relief based on predefined criteria. Pre-agreed payouts are made when parameters like wave height, wind speed, or river levels are breached, regardless of actual physical loss. This means that once the specified threshold is met or exceeded, the insured party receives a fixed amount, ensuring immediate liquidity. This approach eliminates the need for lengthy claims assessments and allows businesses to quickly access funds, helping them recover and maintain operations with minimal disruption. By focusing on objective, measurable parameters, parametric insurance offers a transparent and efficient solution for managing risks associated with unpredictable events.

A project with 10-15 downtime days, priced at EUR 1 million for waiting on weather, with insurance costs at EUR 650,000 covering up to 20 days. The risk is capped and cheaper, making the risk manageable and profitable.