Group 8

Parametric Insurance Case Study: Construction Interruption

Client Need: A client building a sea-side hotel in Southeast Asia carried significant financial exposure to construction delays caused by adverse wind conditions or extreme temperatures which would stall works and impact the hotel’s operational opening. Projected revenue from peak tourism season was critical for the client’s financing plan.

Pain Point: Contractual obligations to financiers and the lack of consistency within the industry as to who carries the compensation penalty in the event of weather caused delay, motivated the client to find a cover for their 30M USD exposure. 

Our Solution: A parametric cover against construction delays arising from strong wind gusts, heavy day-time precipitation, and extreme temperatures. Utilizing satellite and on-site weather station data, we defined the adverse weather parameters and built the indemnification structure based on the intensity of the parameter and the timing of when the interruption occurs. We designed the parameters hand -in-hand with the broker and client, ensuring the cover matched their expected loss of revenue and financial penalties . 

The Result: The client was able to flexibly identify the risk period in correspondence to the critical phases of the project. Descartes’ parametric cover gave clarity and a financial hedge to the client, construction contractor, and financiers, bringing peace of mind and swift payout when a heatwave sidelined the crew, forcing them to stall the project for 2 weeks.

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