Parametric newsletter

Digital disruption has a physical impact.

Most losses from last week’s widespread IT outages that grounded planes, cancelled medical appointments and interrupted business for many organisations globally were likely uninsured. But some of those affected were compensated by quick parametric insurance payouts.

MGA Parametrix offers parametric insurance coverage for IT downtime. Just over a week ago, it announced that it had secured $50mn of coverage protecting an?undisclosed US retail chain?against business interruption in its upcoming sale season.?Parametrix?policies specifically cover cloud outages, with payouts triggered by downtime of specific Amazon Web Services, Google Cloud or Microsoft Azure services.

Most of the disruption last week was caused by a defective update released by cybersecurity firm Crowdstrike affecting Microsoft systems. This was not a cloud outage, so it did not trigger?Parametrix?policies, although the MGA is paying claims in relation to a simultaneous four-hour Azure outage in the US that also contributed to the IT turmoil.

The downstream effects of the outages triggered parametric insurance payouts in the?travel sector. Parametric solution providers Blink Parametric, Collinson and InsurWiz Technology all confirmed to?The Insurer?that they saw a spike in claims last weekend. On Friday, 224 percent more claims than usual were triggered through Blink Parametric’s system, while Collinson’s SmartDelay product saw a 92 percent uplift in issuing automatic benefits.?

Otonomi, which provides parametric freight delay insurance, noted that the effect on supply chains was less severe, and none of its air cargo delay policies have so far been triggered by flight disruption from the outages.

A growing number of global insurers now offer parametric flight disruption covers on their travel policies. It is possible that more consumers received parametric travel benefits on Friday than on any previous day. But many of the financial losses to businesses from the outages will be uninsured.

Could parametric insurance step in to fill these coverage gaps? Parametric structures are well suited to cover binary events that can be monitored by a third party. Either it is raining, or it is not; either an IT system is functioning, or it is inaccessible. Parametrix says it is working on designing broader coverages that would respond to downtime caused by more service providers other than cloud.

The challenges will include modelling the interconnectivity of complex digital supply chains and managing exposure in an insurance market already concerned about cyber risk accumulation.

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CCRIF payouts from Beryl

Several parametric payouts triggered by Hurricane Beryl have been announced since the?last issue of this newsletter.

In addition to a $16.3mn payout on its parametric tropical cyclone policy, the?government of Jamaica?is expecting to be paid $10.3mn after its CCRIF SPC excess rainfall policy was triggered.

The?government of Grenada?has been paid $44mn from three CCRIF policies, including the regional risk pool’s largest payout on record. St Vincent and the Grenadines and Trinidad and Tobago are also expecting payouts.?

CCRIF has also made its first payouts to?utility companies?since it launched dedicated products for them in 2020. Grenadian state-backed electric and water utilities have received $11.5mn.

With so many policies triggered by Beryl, it is no surprise that CCRIF will make a recovery on its reinsurance program.?Global Parametrics’ Natural Disaster Fund, one of its reinsurers since 2021, has released more than $1.98mn.

Other parametric payouts

Private sector parametric insurance policies have also paid claims after Beryl, including some in Mexico’s hospitality sector written by?Swiss Re Corporate Solutions.

Meanwhile, insured individuals and small businesses in Grenada received a total of $1.45mn under a parametric program offered by local insurer?Corp-EFF?in partnership with Global Parametrics.?

A?Global Parametrics?program in Southern Africa has also paid claims recently. The ~$812,600 in payouts is being applied to the outstanding loans of around 77,600 smallholder farmers in Zambia and Malawi to help them recover from a severe drought.

In New York, the organiser of the Dick’s Sporting Goods Open, a PGA Tour golf event, has received a payout from?Vortex Insurance?for the second year running. The tournament operator purchased parametric insurance to cover extra expenses and lost revenue when it rains.?

Product innovation

Guy Carpenter?has announced a new parametric flood insurance product for portfolios covering vast areas. Payouts are settled based on flooding footprint inside a high-resolution grid, with Floodbase, ICEYE and KatRisk as possible data providers.

WTW, which has previously designed cyclone covers for coral reefs, is exploring how to provide parametric insurance for coral bleaching events. One possible data source is the Degree Heating Weeks index which measures temperature anomalies.

NormanMax?has become the latest parametric specialist to partner with the Global Earthquake Model (GEM)?Foundation to support its development of open-source software and global hazard and risk models.

Insurance-linked securities (ILS)

Index-based risk transfer for cyber is another recent innovation, with Swiss Re one of the first to secure a cyber retrocession industry loss warranty (ILW) in a transaction in January. Now,?Cyber Risk Insurer?has revealed that?Beazley?is aiming to secure $1bn of cyber ILW cover, working with the cyber ILS team at Gallagher Re. This was reported before the recent IT outage brought uncertainty to the cyber insurance and ILS market.

SageSure?has also used an industry loss index to secure retrocessional protection, in its case for named storms in the US. It has issued a $60mn catastrophe bond with a county-weighted loss reporting trigger, for the 2024 hurricane season only.

2024 has seen a positive start for the ILS market, according to investment manager?Twelve Capital, with the market’s growth expected to continue.

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