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Insurtech start-up Hillridge raises AU$2.3m to reduce climate insurance gap

© Shutterstock / Trong NguyenPost Thumbnail

Australian insurtech start-up Hillridge Technology has secured AU$2.3 million in seed funding to expand its insurance offering to provide cover against extreme weather events.

  • Hillridge Technology will use the fund to bring its parametric weather insurance to the southeast Asian market.
  • The product covers climate-exposed industries with predetermined payouts based on the occurrence of adverse weather events.
  • We should expect to see fintech solutions enabling the extension of traditional financial services by applying established methodologies to new market demands. 

Hillridge has developed a parametric weather insurance product, which provides predetermined payouts on a claim based on the occurrence of adverse weather events, rather than the damage they cause.

Parametric insurance is so-named because payouts are triggered by specific events as measured by defined parameters being exceeded. 

For example, parametric insurance against flooding would make payout of a predetermined sum when a specified level of precipitation had occurred.

With more than half a billion farmers currently being denied insurance cover due to inflexible business models from traditional insurance companies, parametric insurance provides an alternative to help finance the cost of project delays, and associated economic losses, caused by extreme weather.

Since Hillridge attracted its first round of pre-seed funding in 2020, it has licensed its technology to Canadian fertiliser company Nutrien Ag Solutions, a division of Nutrien (NYQ:NTR), and Marsh Insurance, the insurance and broking arm of Marsh and McLennan (NYQ:MMC). 

The product was launched in late 2021, marketed as ‘Weather Index Insurance’, and was underwritten by Mitsui Sumitomo Insurance of the MS&AD Insurance Group Holdings.

It has since gained traction in Australia and New Zealand, and will now be expanded into southeast Asia.

Fintech idea based on trading weather derivatives

Hillridge developed its Weather Index Insurance to fill a gap in the agricultural insurance market’s demand for insurance coverage of weather risks. 

As the firm’s CEO, Dale Schilling explains, “The climate protection gap has left hundreds of millions of people and businesses uninsured and exposed to the financial fall-out of extreme weather. These are vulnerable people who need financial protection, yet are unable to access the weather derivatives and insurance that large corporations take for granted.”

The solution was developed following the same principles used by major energy companies, applying  financial hedges against profit declines during warm winters.

Recognising that multi-peril crop insurance – the oldest and most common form of crop insurance – had failed because of high premiums and a one-size-fits-all product that was poorly designed for smaller farms, Hillridge incorporated decades worth of local Bureau of Meteorology (BoM) data to derive other types of hedging, to offset potential farm and crop losses.

Hillridge claims that this satellite weather data, combined with big data analytics and blockchain technologies, enable it to overcome the inefficiencies and transparency gaps that are inherent in traditional insurance.

Using the technology and meteorological data analysis from Hillridge’s software, growers can take out short-term weather index insurance. 

Policy delivery costs are reportedly reduced to a fraction of that of traditional insurance, and are calculated in real-time via a smartphone application. Automatic payout instructions are issued if adverse weather occurs, and typically issued within days.

Weather parametric insurance not new to traditional insurers

Actors within the insurance industry have already acknowledged parametric insurance as a solution to help fill gaps left by traditional insurance by major firms in the industry. 

In recognition of its potential advantages compared to traditional indemnity-based policies, such products are often provided by the major firms as supplemental insurance to existing policies.

In specific relation to weather and climate related events, parametric insurance has been applied to large scale renewable power generation projects.

Many small farmers, and contractors, however, lack the scale required for a traditional insurance company to consider writing a policy or underwriting their risk.

Hillridge’s product is an example of embedded insurance, part of the broader embedded finance movement enabled by emerging technologies, which is characterised by real-time bundling and selling of coverage as the purchaser is buying a product or service. 

This brings insurance to the purchaser at the point of sale, which results in more affordable, relevant and personalised insurance when and where it is needed most. 

Embedded insurance has the potential to close the insurance protection gap for vulnerable market segments, by integrating insurance functionalities with technology-based risk mitigation capabilities. 

Such solutions are expected to be in high demand, with a study by Embedded Finance projecting that they will account for premiums of $700 billion in property and casualty alone by 2030, equating to 25% of the total global market. 

We should expect to see fintech companies responding to this demand,  making use of advancing data technologies to develop products and services that enable the lower distribution costs and reduced underwriting risks required by the small businesses and individuals entering the market.

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