A trio of hurricanes proves the value of parametric risk transfer

2017 was a significant moment for the parametric insurance market. Parametric natural catastrophe covers had existed for 20 years, but adoption remained very limited. Then three hurricanes hit.?

Harvey, Irma and Maria caused large economic and insured losses in the US and Caribbean. Many homes and businesses were underinsured, especially for the under-modelled flood peril, which was a key driver of losses from Harvey. Claims settlements were often delayed and insurers faced high loss adjustment expenses.?

Meanwhile, some early adopters of parametric insurance received payouts within weeks to help their businesses bounce back. Some in the market point to this season as the turning point that made the wider insurance industry start to pay serious attention to parametrics.?

Seven years on, the 2024 Atlantic hurricane season (which is not over yet) has also seen three major hurricanes make landfall in the US and Caribbean.?

Based on estimates so far, Beryl, Helene and Milton’s combined losses are unlikely to match those from Harvey, Irma and Maria, but each 2024 hurricane also brought surprises: from the early formation of Beryl to the inland wind damage of Helene.?

This time, many more organisations in the affected regions had parametric insurance policies, though there remain significant underinsured losses. It is another moment when the parametric insurance market can show its relevance.?

This week’s newsletter features news of some of those payouts, plus reflections from Swiss Re’s Martin Hotz on what the parametric market can learn from the unique nature of every storm.?

Hurricane Milton?

Before Hurricane Milton hit Florida, there was some concern that it would pass close enough to the Yucatán Peninsula to trigger a payout on the World Bank-facilitated parametric catastrophe bond for the government of Mexico.?

However, its track appeared to miss the trigger zone, Parametric Insurer analysis showed last Tuesday. Icosa Investments later confirmed that it did not expect the bond to be triggered.?

The real impact on the parametric market will come from Milton’s landfall near Siesta Key on Wednesday night, with commercial property owners in coastal Florida among the most prolific buyers of parametric hurricane coverage.?

Swiss Re Corporate Solutions is expecting to pay parametric claims from Milton, Parametric Insurer revealed on Thursday, with recent payouts also triggered by tropical cyclones Bebinca, John and Helene.?

Hurricane Helene?

Parametric policies placed by Augment Risk were also triggered by Hurricane Helene, the broker said last week.?

Parametric Insurer revealed earlier this month that MGA FloodFlash was processing claims from Helene too.?

In an exclusive interview, Swiss Re Corporate Solutions’ Martin Hotz described how the parametric market can learn from Helene’s distinctive characteristics.?

While past storms are useful for back-testing parametric structures, companies should take care not to over-engineer their products for previous events, he argued, with Helene’s large size another example of each catastrophe being unique.?

Agriculture payouts?

Meanwhile, other recent parametric claims have been triggered by weather events affecting crops and livestock around the world.?

In China, payouts have been made to the agriculture sector after Typhoon Bebinca’s landfall in Shanghai and rain and heat in Jiaxing.?

A heatwave has triggered a claim to Srinivasa Farms in India, covering reduced egg yield from chickens. The policy was designed by Ibisa and underwritten by Future Generali.?

And 1,800 smallholder farmers in Zimbabwe received payouts last week on a pilot parametric drought insurance scheme covering the 2023-24 agriculture season.?

Product launches?

In South Africa, Land Bank Insurance and CelsiusPro have launched a parametric drought insurance pilot for farmers, in what appears to be a regulatory breakthrough.?

The InsuResilience Solutions Fund, an early backer of that South Africa pilot, has announced two new grants to support parametric insurance schemes in Malawi.?

Amwins has announced a parametric flood insurance program for California’s public sector, in partnership with Floodbase. The companies say some municipalities have already purchased the product, which covers flooding from atmospheric river events.?

Parametric start-up Adaptive Insurance has been launched by former Hippo Insurance executives. Its first product covers US businesses against losses from power outages.?

Travel insurance brand Berlin Direkt has adopted Blink Parametric’s solutions to compensate travellers for delayed flights and lost luggage.?

Highlights from Parametric Insurer?

If you haven’t already read the October edition of Parametric Insurer, here are just a few of the highlights.?

The University of California, a buyer of parametric earthquake insurance since 2017, has adopted a sensor-triggered cover offered by Liberty Mutual Re with technology from Safehub, Parametric Insurer revealed.?

As property catastrophe reinsurance attachment points remain high, cedants are turning to alternatives to address frequency perils ahead of the January 2025 renewals, including structured solutions and parametric covers.?

A $3.1mn parametric insurance fraud in the US, where farmers tampered with weather stations to receive false payouts, according to their plea agreements, highlights the potential for parametric triggers to be undermined.?

Subscribers to The Insurer can download the full issue here.

You can also access the top 5 articles from this month's issue for free here. If you don’t have an active subscription and would like full access, contact our team.?

A broader perspective?

Taking a step back from individual products and transactions, there have also been some recent indications of the growing scale of the parametric market.?

Global Parametrics’ Natural Disaster Fund covered 41.6 million beneficiaries with parametric solutions in 2023, deploying 140 percent more capacity than 2022.?

Coverage from regional parametric risk pools reached a new high of $1.45bn in 2023, according to the Centre for Disaster Protection.?

In its Insurance Marketplace Realities report, WTW said that demand for alternative risk transfer solutions remains high in North America, with no overall change in rates predicted for parametric and structured solutions.?

Liberty Mutual Re CUO Chantal Rodriguez cited an “increase in demand” for parametric solutions in an interview with The Insurer TV, arguing that it is broader than just a hard market tool.?

People moves?

Richard Pennay, previously CEO of ILS for Aon Securities, has been appointed Aon Securities CEO, succeeding Paul Schultz who has been named global vice chair of Aon’s Reinsurance Solutions unit.?

Marsh’s Will Thomas-Ferrand has also been promoted from international practice leader for Marsh Captive Solutions to head of captive insurance, as Ellen Charnley retires at the end of 2024.?

NormanMax Syndicate 3939 has added Munich Re’s Dominic Coyne as executive underwriter, reuniting with former Munich Re colleague Stuart Newcombe, the parametric nat cat syndicate’s active underwriter.?

Lockton has continued to grow its parametric team in the UK and Europe with the hire of? FloodFlash’s Henry Bellwood as data science lead, Parametric Insurer revealed yesterday.?

This publication also revealed that Kit Muir, Arbol’s global insurance origination head and Europe managing director, has departed the firm.?

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