US public agency layoffs put details of parametric trigger data in focus

(The Insurer) - Following concern about the effects of job cuts to U.S. weather and seismic information agencies, Parametric Insurer analyses the parametric insurance market's reliance on their data.

Many datasets used for settling parametric risk transfer contracts are produced by the National Oceanic and Atmospheric Administration or the U.S. Geological Survey.

Tropical cyclone data from NOAA's National Hurricane Center and earthquake information from USGS are among the most widely used datasets for parametric coverage, said Mark Rüegg, CEO of parametric specialist CelsiusPro. There are also contracts based on other weather metrics NOAA provides, such as precipitation, Rüegg added.

Since the start of the second Trump administration, 1,300 workers have lost their jobs at NOAA as part of an efficiency drive, with Reuters reporting earlier this month that a further 1,029 layoffs are planned. USGS has also been hit by job cuts in recent weeks.

Some climate scientists have said the quality or timeliness of NOAA's data will suffer as a result, including two current employees at the agency who spoke anonymously to Reuters at a protest in Colorado.

This concern has been shared by some in the insurance industry. Justin Roth, associate director of catastrophe analytics research and development at Howden Re, said in a LinkedIn post earlier this month that two radar sites operated by NOAA's National Weather Service no longer have staff to fix them.

"This means that lives are in danger if we do not have the proper equipment to determine tornado warnings or severe thunderstorm warnings," Roth said. "It's not unusual to have radar sites that need maintenance; however fixing them requires proper training."

RELIANCE ON PUBLIC DATA

Parametric market sources canvassed by Parametric Insurer are not anticipating immediate problems with triggering payouts, but the market's reliance on data from U.S. public agencies has been highlighted by the job cuts.

"It is too early to say what kind of effects the budget and staffing cuts at NOAA and USGS could have on the accuracy of this critical data in the long run," said David Whitehead, head of weather risk management at Vaisala Xweather. He added that he did not expect major changes in the short term.

Vaisala, after its recent acquisition of Speedwell Climate, acts as a settlement agent for parametric risk transfer contracts including insurance and derivative transactions. Its data is used to determine if the threshold is met for a payout to be made under a parametric contract.

Whitehead said the data collected and disseminated by NOAA is especially important in the U.S., but widely used in the parametric risk transfer market elsewhere in the world too.

Parametric Insurer has previously reported on parametric policies using NHC data in Central America and the Caribbean, and global datasets from U.S. public agencies are used for transactions covering perils such as earthquake and rainfall on other continents.

There are some alternatives. Rüegg said that the European Union's Copernicus programme now provides a similar set of data to NOAA for some weather conditions, while regional agencies around the world provide information on earthquakes.

However, Whitehead said it would be very challenging to substitute NOAA data with weather information collected by other governmental organisations or the private sector, particularly given the scale of NOAA's coverage.

"Also, not all data sets are usable for financial risk transfer," Whitehead said. "For surface weather data, data sets must meet certain criteria such as length of the historical record, data security and location of the stations."

MANAGING DATA ISSUES

“All parametric products have typically a fallback methodology in the contract,” said Rüegg. He said the market would need to review these fallback methodologies going forward to make sure that the fallback does not only rely on data provided by the same agency.

Many commercial providers of weather data rely on the metrics provided by agencies such as NOAA, while some parametric contracts may use a later batch of information from a public agency as a backup in case data is not available as usual in the immediate aftermath of an event.

"It is not uncommon for some weather parameters to be unavailable or unreliable at the moment of settlement in a parametric contract," Whitehead said. "However, when a proper settlement data methodology is in place, issues can still be effectively managed."

He added that Vaisala's systems generate estimates that can be used to settle a transaction if data is missing or erroneous, or even if a major data set were to fail entirely.