Swiss Re Corporate Solutions
Parametric insurance has been around for more than a decade but has often been seen as expensive compared to traditional coverage.
In the hard market, however, parametric coverage can provide much-needed coverage at a comparable price for certain hard risks, such as hail exposures, and contracts are much simpler than traditional insurance, says Cole Mayer, San Francisco-based vice president of Swiss Re Corporate Solutions, a unit from Swiss Re Ltd.
The insurer developed a parametric coverage for hail last year, and the product is the recipient of a Business Insurance 2021 Innovation Award. [1
Swiss Re has bound 40 parametric hail policies since its soft launch in March 2020 and registered more than $ 1 million in premiums for the first year, Mr. Mayer said.
The policy trigger is based on the size of a hail, in increments of one inch, as verified by CoreLogic Inc., an Irvine, California-based data and analytics provider, he said.
Insured locations are defined as latitude and longitude points. Limits are available up to $ 5 million, or potentially higher depending on exposure, geography and client profile, Mayer said.
Parametric contracts are shorter and simpler than traditional insurance contracts that involve the same dangers, he said. For example, a parametric contract can be nine pages, with few if any exceptions, compared to 90 or more pages for a traditional contract loaded with declarations, exceptions and additions.
Parametric coverage also pays off quickly once a loss has been verified. The Swiss Re product is designed to pay out within 30 days.
Parametric covers can complement traditional coverage with rising interest rates in a tight market, Mayer said.
"With constraints generally shrinking and deductibles increasing, this is where parametric can really help fill one or both of these gaps," he said.
For traditional retailers' open party coverage, for example, "what you see … the deductible is rising significantly. Sometimes the limits are limited and pricing continues to increase. That is why we have seen much of the success we have seen in the retailer's open space. , "He said.
While higher comparative rates have long been the Achilles' heel for parametric coverage, parametric hail coverage can now complement traditional coverage" at a price point that is similar or sometimes a little cheaper than the equivalent traditional insurance, "he said.