ChAI Protect Buyers Guide! Below, you can find key FAQ's that you need to learn about ChAI Protect, and make the decision to purchase a policy with ChAI. If you haven’t found the information that you are looking for here, please reach out to us and let us know.
What is ChAI Protect?
ChAI Protect is an insurance product designed to help a manufacturer protect against costs associated with the volatility of raw materials prices in their supplier contracts, in turn passing on pricing benefits to the end consumer.
It uses benchmark prices for raw materials like agriculturals, metals, plastics, forest & recycling products as a reference, allowing insurance policies to be written that protect against unexpected losses from changes in prices, as they manifest in the goods that manufacturing companies buy and sell.
How does ChAI work?
To take out coverage with ChAI, you select the goods or raw materials you’d like to protect against price changes, and an index that reflects the price volatility risk you experience when buying those goods. For example, if you’re purchasing PET bottles in Europe, we’ll help you identify a European PET plastic price with one of our Price Reporting Agency partners (e.g S&P Global Commodity Insights & Fastmarkets), and use this as the basis for assessing your cover.
You then let us know the volume you’d like to protect, the time periods in which you’d like your purchases to be covered, how often you’d like to receive payouts. Finally select your coverage range, according to how significant a price movement you’re looking to protect against.
After each covered month in your policy, we’ll check whether the index price has moved into or past your coverage range, and when it has, if you’ve made a loss, you’re eligible for a payout to compensate you for your losses, stabilising your spend or income.
Where is ChAI available?
ChAI is currently available directly from ChAI in the UK, and through brokers in the EU and US, with plans already underway to roll it out to other countries and industries across the world in 2025.
Who can use ChAI?
Any trading business (generally, but not always, manufacturers) that carries a risk of loss of income due to commodity price volatility can use ChAI to mitigate that risk.
Insurers call this risk to loss of income insurable interest and it’s a vital part of how ChAI operates. ChAI is not available for financial speculation of any kind, and businesses cannot protect more than they buy or sell.
Can I speculate using ChAI?
No. We work tirelessly to block speculation; ChAI Protect is a tool to manage real risk to your real business, rather than trying to make a financial trade for profit (speculation). Businesses are limited to taking out coverage against goods that they actually buy or sell.
How does the index price impact my payouts?
There are 3 price levels of your chosen reference index that are used to determine a payout, described below:
- Basic Price
- Start Price
- Limit Price
The Basic Price is set to the index level at the inception of the policy. It serves as a baseline that determines what ‘no change’ looks like over the life of the policy.
For a buy-side policy, your Start Price must be higher than your Basic Price, with the difference being the portion of price risk that you retain. This means that small increases in the index price don’t result in a payout, but larger ones do, ensuring the interests of you and your insurer are aligned. Payouts increase as the index price rises from the Start Price up to the Limit Price, then reach a cap.
For a sell-side policy, your Start Price must be lower than your Basic Price, with the difference being the portion of price risk that you retain. This means that small decreases in the index price don’t result in a payout, but larger ones do, ensuring the interests of you and your insurer are aligned. Payouts increase as the index price falls from the Start Price up to the Limit Price, then reach a cap.
In your Policy, you’ll see the Start Price and Limit Price expressed in terms of cash amounts (called the Deductible and Limit of Liability, respectively) rather than index prices per unit, as they take into account the volume of purchases made as well as the index level. The index levels these are equivalent to can be inferred from these cash values.
What is a Start Price?
The Start Price is the floor price our clients select for the policy. The closer the Start Price is to the current index price (Basic Price) the more expensive your quote will be. That’s because it’s far more likely to result in a payout. The further the Start Price is away from the Basic Price, the lower your quote will be.
This is just like selecting the level of excess in your car insurance. The greater the excess, the cheaper the quote.
What is the Limit Price?
Your payouts increase the greater the change in index price between the Start Price and the Limit Price. The Limit Price is in place to make your premiums more affordable, as it controls the largest amount that could be paid out under the policy. It’s just like selecting your maximum cover level when you buy travel health insurance.
How do I receive a payout?
Unlike most insurance products, there’s very little you need to do to receive a payout. You’ll know immediately when you’re due a payout with a notification straight to your inbox, as the calculations are done by ChAI automatically using your chosen index.
You’ll need to confirm that you have actually bought or sold the expected volume of raw materials covered by the policy.
You do this by returning a simple form which is at the end of your policy called a ‘claim notice’ at the end of each covered calendar month in which a payout is due, and at the end of the policy. Along with ‘Proof of Loss’ (such as an invoice/receipt) this is part of our ‘insurable interest’ checks that make ChAI Protect possible.
Your payout is determined by the Index price change and the volume you’ve transacted.
How do I get paid for a claim?
When an active month within your policy ends, you’ll get notified regarding your eligibility for a claim. You simply need to respond with the volume of covered goods you’ve transacted that month via a simple form (part of our ‘insurable interest’ checks) along with your proof of loss, and the funds will be released to you.
In case of any misstatements in monthly volumes, there’s also an opportunity at the end of the policy to receive or make a final payment, depending on whether there’s been an over or understatement of transacted volume. This is known as policy reconciliation.
Are clients who make claims penalised by higher premium prices?
No. Our clients are not penalised because a claim has been awarded in the past. Our pricing uses financial market modelling techniques and commodity market expertise to determine pricing, rather than techniques like ‘no claims’ used in other types of commercial and consumer insurance. We are determined to help commodity businesses plan their futures with more confidence so they can become more financially secure. Penalising clients by then asking them to pay higher prices for their future insurance premiums would be counterproductive as far as we are concerned.
What commodities do you cover?
We currently offer coverage against a range of indices in Plastics, Metals, Agriculturals, Recycled Products and Forest Goods. Price reporting agencies we partner with include S&P Global Commodity Insights and Fastmarkets. Please ask about specific contracts that are of interest to you.
Disclaimer: Commodities AI Limited (FRN: 1041595) is authorised and regulated by the Financial Conduct Authority. You can check this by visiting the Financial Services Register at www.fca.org.uk/register. Product is subject to terms and conditions.
