It’s good to be different

Parametric Insurer launches its first edition as a growing number of organisations deploy alternatives to conventional insurance.

Take a look at the launch edition for FREE here

From climate to supply chains, companies and communities are facing increasingly severe and complex risks beyond those covered by traditional (re)insurance programs. In response, the insurance market has continued to develop a suite of alternative risk transfer (ART) tools, particularly parametric solutions, which can be customised to tricky exposures and respond quickly in a time of need.

Parametric risk transfer instruments pay out predefined amounts after trigger events. The value of a claim is agreed in advance or calculated using an index, such as a hurricane’s wind speed. Because this is so different from typical loss adjustment processes, it is suited to different types of exposures.

In most cases, parametric solutions – in insurance, derivative or ILS form – are used alongside conventional insurance for aspects of risk that other coverage neglects. This could be a multi-million-dollar deductible in a catastrophe-exposed area, immediate expenses incurred long before claims are adjusted, or business interruption losses not associated with any physical damage.

This new publication from The Insurer exists to chart the growth of parametric solutions, analyse developments in the market and demystify the unfamiliar. As well as parametrics, we will also report on the broader category of ART, including structured (re)insurance, captives and capital markets.

2024 has already provided plenty of examples of parametric policies in action. Many sprang into action after Hurricane Beryl, making payouts within a few days of its impact. Governments used the funds for national relief efforts, corporations from telecoms to hospitality were compensated for disruption and smallholder farmers received cash to help them recover.

But parametrics are not just for shock events such as hurricanes. Significant claims have been paid this year in response to prolonged dry conditions induced by El Ni?o, across Southern Africa and elsewhere. Meanwhile, too much rainfall triggered a payout to the organisers of a New York golf event for lost revenue and more golf courses have started offering customers automatic payouts if weather disrupts their rounds.

July’s CrowdStrike outage also highlighted organisations’ underinsurance for digital business interruption losses. Although there is no known parametric solution that would have compensated affected companies, parametric coverage has paid claims for other types of third-party IT downtime. Many travellers hit by the disruption that ensued from the CrowdStrike outage benefited from quick payouts on parametric flight delay cover provided by their insurer or bank.

Each payout is a proof point for parametric risk transfer. From renewables to retrocession, Mexico to Mozambique, people and organisations need to know their coverage will respond when they experience a loss. This publication will tell stories of claims paid and examine the details of how different parametric structures are designed to reduce basis risk, the possible gap between a loss and a payout.

ART is not about to replace conventional insurance. Parametric insurance, for example, is not better or worse than any other form of coverage, at least in the abstract. It is simply different: a good tool for some risks, unsuited to others. But, as the awareness of parametric solutions and the scope of what they can cover increase, it seems that this market’s significant growth is set to continue.

Take a look at the launch edition for FREE here or visit parametric-insurer.com

We'll still be continuing our fortnightly parametric newsletter but rom October?onwards, only subscribers to?The?Insurer?will continue to receive the monthly newsletter and retain unlimited access to all Parametric?Insurer?content.?If you don’t have an active subscription and would like full access,?get in touch?to enquire.