Lockton Re, a reinsurance broker, has entered into a strategic collaboration with data analytics and technology provider Verisk to develop new crop reinsurance products.
Lockton Re will tap Verisk’s advanced agricultural risk modelling solutions including MPCI and the Crop Hail Model for the US.
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These models provide a sophisticated approach to understanding potential insured losses due to climate impacts on crop production, moving beyond traditional methods that rely solely on historical data.
Lockton Re senior broker and agriculture practice leader Kris Lynn said: “We are embarking on a journey to advance risk management options for the US crop reinsurance industry.
“By incorporating advanced climate data and understanding the global impact of El Niño–Southern Oscillation (ENSO) on crop production, we are able to offer reinsurers a data-driven approach to risk transfer and product innovation that hasn’t been available before. There has been slow adoption of the data and analytics necessary to keep up with changing risk landscapes. We aim to change that.”
Verisk’s models, which simulate hailstorms using a 10,000-year stochastic event catalogue, will enable Lockton Re to gain a realistic view of loss scenarios. The models incorporate a range of factors including crop genetics, exposure, management practices, policy conditions, prices, weather data and yields.
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By GlobalDataThe use of Verisk’s crop models will assist Lockton Re in creating new indexed products tailored to help reinsurers manage the increasing risks associated with a changing climate.
Lockton Re stated that the US crop insurance market has experienced significant growth, with indexed insurance products, similar to those being developed by the company, gaining traction.
Verisk’s tools such as the Fund Designation Service will also aid portfolio risk managers in evaluating the profitability impact of expanding into new states with limited underwriting history and in optimising designation alternatives.
Verisk Extreme Event Solutions agricultural modelling solutions business development manager Oscar Vergara said: “Lockton Re brings a fresh, disruptive perspective to the US crop market, and we are excited to support its innovative approach.
“By using our crop models, Lockton Re will be able to provide more informed, data-backed solutions that account for everything from hail damage to the effects of extreme weather events fuelled by climate change. Reinsurers and insurers need a robust, up-to-date risk assessment model to help maximise profit within risk tolerance level.”
In 2023, parametric products represented approximately 12.4% of the MPCI premium in the US, according to the National Crop Insurance Services, with even higher percentages in certain key states.
Lynn added: “As climate change continues to impact crop yields globally, the collaboration between Lockton Re and Verisk will provide insurers and reinsurers with the tools and insights they need to navigate an increasingly volatile landscape. This collaboration marks a new chapter in crop insurance, driven by data, analytics and a commitment to improving risk transfer solutions.”
