Finance and Insurance
Extreme weather events such as excessive rainfall, storm, hail and drought cause significant financial losses. The number and intensity of extreme weather events are expected to increase due to climate change. This has large implications for the insurance sector, as the damage caused by extreme weather events will likely increase and they have to pay out more to their customers. As a response the insurance premium can increase, or the insurance company decides that certain damage is not insurable anymore in a changing climate. This has large implications for the vulnerability of individuals to climate change. A specific group that is vulnerable to extreme weather events is farmers. They can experience large agricultural losses due to extreme weather. Weather Impact can help in mitigating these climate risks.
Mitigating risks by early warning
In order to mitigate risks due to extreme weather, individuals can take preventive measures by informing them timely about the risks. Weather Impact has developed a real time alert system that support our clients to mitigate risks from extreme weather events. We provide:
- Early warning alert messages, outlooks & forecasts
- Smart use of big data and ensembles of weather forecasting models
- High resolution maps with index of drought conditions, extreme precipitation or other meteorological events
- Cost-benefit analysis to optimize the economic value of the alert
- User friendly applications, live feeds, customized downloads or interactive figures
With these real time alerts individuals can take preventive measures to reduce the risks of extreme weather. For example one can check it’s house for loose furniture or park his/her car not close to a tree to prevent storm damage caused by falling trees. This type of weather information can also help farmers to make vital farming decisions. A farmer can for example decide to harvest their crops earlier when extreme weather is expected or plant a drought-resistant crop if they know the season is expected to be dry.
A traditional insurance is based on payout of actual losses. It works on the principle that when an individual has damage caused by extreme weather, he/she contacts the insurance company. They will measure the plausibility and will pay out. For smallholder farmers in developing countries this traditional system does not work efficient. In these countries they often make use of parametric insurance (also called index-based insurance or micro insurance). This kind of insurance is based on automatic payout when a certain event has happened, regardless the actual individual damage. Weather is an important factor in allocating the risks, as weather is directly connected to agricultural production losses. For example, a farmer can lose his/her yield due to excessive rainfall or is reduced due to drought. The insurance company monitors these type of weather events by weather observations and satellite imagery and has an automatic payout system. Weather Impact delivers the weather component for parametric insurances. We can do climate analysis on which thresholds to choose and we also deliver operational weather services to monitor the exceedance of thresholds for each location.
- Early warning system developed in Extreme precipitation project
Weather Impact partners with the Dutch Royal Meteorological Institute (KNMI) to develop an operational warning system for extreme precipitation. With fast and localized alarms for extreme rainfall, users can take measures to prevent or reduce the (financial) impact of these showers (flooding, infrastructure etc). The warning system uses innovative statistical techniques on ensemble forecasts and radar nowcasts to generate a combined precipitation forecast at high resolution in place and time.
- Credit scoring
In Ghana Weather Impact partnered with Satelligence to analyze the technical and financial feasibility of a reliable and scalable digital credit scoring card on smallholder farmers based on satellite data. This service maps environmental risks and would help smallholder farmers to get easier a (relatively small) loan. Weather Impact focused on the provision of localized and crop specific climate risk indicators.
- Hail alert system for the insurance sector: In the Netherlands, summer hail with a diameter of two centimetres or more occurs a few times a year somewhere in the country. Larger hailstones, varying from 6 cm to more than 10 cm, also occur and cause lots of damage. The hailstorm of June 23, 2016 that passed over the South-eastern part of the Netherlands caused an estimated damage of about 500 million euros. The Dutch Association of Insurers, in collaboration with the KNMI, demonstrated that intense rain and hail showers will cause much more damage in the future climate. Further adaptation to future climatic patterns is needed. To become more climate resilient in the long term, the best way is to keep premiums affordable and insurable is to take preventive measures. A short-term hail notification could support for example car-owners to protect their assets from hail.In this feasibility study, commissioned by the Dutch insurance company InShared, Weather Impact and Disdrometrics explored the possibility of developing an operational hail-alert system. An operational, full automatic system was designed that warns clients of InShared when they are present in a high risk area.