Group 8

Parametric Insurance Case Study: Business Interruption due to Low River Level

Client Need: A commodity trader in Western Europe faced critical business interruption exposure when water levels on the Rhine surpassed or fell below the common river level range. Low or high river levels had halted ship transportation in previous years, including 2018 when an extended period of low water levels caused a 28M € impact on the company’s balance sheet and strained its reputation.     

Pain Point: Market conditions around non-damage BI made it impossible to find a satisfactory BI policy in the traditional marketplace. The commodity trader was forced to absorb the costs of organizing alternative modes of transportation to meet procurement deadlines whenever river levels stopped ship traffic. They sought an alternative risk transfer solution that would insure liquidity in the event of low river levels.

Our Solution: A parametric river level cover that uses daily water level data from specific stations that have proven to be linked to transportation disruptions and losses for the client in the past. We designed the solution using daily measurements from these stations and established parametric water level thresholds to build a pre-agreed loss structure. Tailored to the client’s loss history and expected alternative transport costs, a precise payout structure depending on the water level at pre-agreed gauges was implemented

The Result:  Indemnities are registered during the risk period for each day that Rhine levels exceed maximum or minimum river level thresholds, with losses paid out swiftly to the client. With this reliable and predictable parametric cover, the client would have received 30M € in 2018 for the 30 days during the risk period that water levels exceeded the threshold, matching the loss that they indicated for that year.

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