Sharp increases in insurance pricing drive more interest in alternative coverage, including insurance products for which triggering of claims is based on data points, such as climate data, usually provided by an independent, verifiable third party.
Sk. parametric coverage is drawn differently by using third-party index data instead of an insurance loss history, and the scope is extended beyond the core's natural disaster coverage, experts say.
"Everyone is looking for additional resources to manage risks," said Stephane Godier, Santiago, Chile-based Regional Manager America, Axa Climate, a division of Axa SA, especially in areas where capacity is scarce, such as tropical cyclone risk in Gulf of Mexico.
The hardening market "opens the door for conversation", says Evan Stait, Commercial Account Manager at Hub International Ltd. in Kelowna, British Columbia, adding that about three in ten potential customers "draw
" Sure, the curing market is getting customers to look at alternatives to traditional insurance, "said Paul Ramiz, head of Aon PLC's innovation and solutions team in London. "If you have a tough renewal, or if you're struggling for capacity, there's an alternative market you can talk to."
Parametric products applied to disaster risk "cycle based on factors including when general compensation and conventional markets harden," says Chad Wright, Head of Risk Analysis and Alternative Risk Transfer in the United States and Canada for Marsh LLC in Atlanta.
There is more traction than before the curing market to use parametric coverage, Godier said, especially with the products for a deductible buy down, "because this is where the solutions are more effective." A policyholder can start with a first layer of parametric coverage and then attach higher to it traditional program, he said.
Parametric products for natural disasters such as earthquakes and hurricanes were the first to be introduced, about 20 years ago. More recently, parametric products have been developed for other hazards, including hail, drought and other weather events, Wright said.
"Excessive rain, excessive snowfall, lack of snowfall are all solutions we have in our portfolio j, "he said, adding that Marsh also has a product for pandemic-related risks based on a parametric trigger.
For example, a parametric contract may be based on whether a particular location exceeds a certain amount of snow within a defined time frame.
"It increases the number of people investigating alternative products – business breaks that do not trigger triggers, for example," says Mr. Ramiz of Aon (see story). However, the mature end of the market is in weather and natural disasters, such as wind and earthquakes, he said.
Aon had its "best year to date" for parametric 2020, and there has been a "
Aon invested more than $ 500 million in coverage through parametric products by 2020, including the largest parametric deal ever for a client, north of $ 300 million in limits, said Ramiz.  "Many years ago you had to go to the capital markets to get significant limits," says Wright of Marsh. "Now insurers are putting more and more money into this type of solution. Some markets will make hundreds of millions of dollars, and there are limits as high as $ 500 million for earthquakes. "
Parametric coverage offers capacity" who want to take risks ", and because property insurance prices have hardened, there is less difference. in pricing between traditional coverage and parametric coverage, he said.
The two types of coverage can also be used together.
"Parametric insurance can work great to be a companion to completing a standard insurance offer," says Jonathan Charak, new Solutions Director in Schaumburg, Illinois, for Zurich North America.
Parametric coverage is commonly used to supplement and supplement traditional coverage, not to replace it, Ramiz said. However, there are precedents for a client to remove all wind from their traditional portfolio and replace it with parametric coverage, he said.
Scott Carpinteri, senior vice president, Innovative Risk Solutions, at Swiss Re Corporate Solutions, said that parametric insurance is another product of a tort contract.
"It has no deductible, it has no real exceptions, and it does not require any indemnity," he said. In addition, the documentation is usually simpler and has an average of about 15 pages.
Swiss Re Corporate Solutions' online parametric hurricane coverage platform Pop Storm allows users to purchase coverage online based on trigger and payout tables.
Hub & # 39; s Stait said that parametric coverage also differs from traditional coverage because the insurance process does not take loss history into account. "Everything is computer-driven," he said. Insurers need at least 25 years of data without gaps, such as weather data from the U.S. National Oceanic and Atmospheric Administration, to cover the risks, Ramiz said. Data derived from other areas, such as telematics, are still "immature" to support parametric insurance, he said.