When parametric becomes a perk – The Parametric Post Issue 66

Thought for the day… when parametric becomes a perk

In most cases, when people or organisations purchase parametric insurance, it is because they feel they have to. Hurricanes pose a major threat to their assets, for example, or their business’ revenue is heavily correlated to weather conditions. They need protection and traditional insurance alone will not provide the cover they need. In this week’s Parametric Post, there are a few examples of parametric insurance playing a quite different role, as a perk or benefit associated with another product.

Solar panels are a significant investment, with most households taking several years to make up the costs of installation through savings on their energy bills. Many are concerned by the uncertainty around how much energy will actually be produced. In Italy, people that buy domestic solar panels from energy firm Plenitude before the end of March will be covered by a parametric policy from Zurich, free of charge, for three years. If their house experiences less sun than could be expected, they will be compensated automatically. This could make investing in solar panels more attractive.

In the agriculture sector, there is another example of parametric coverage offered as a free benefit within another product: seeds. Seeds are only valuable if they grow into crops that can be harvested, just as the value of solar panels depends on the energy output. In several places around the world, seeds are starting to be sold with parametric insurance included, usually covering drought or other weather conditions that would stop them growing. This Parametric Post includes details of a new pilot in the Philippines.

For years, protection policies have been used to make all sorts of products more attractive, from seven-year car warranties paid for by the manufacturer through to travel insurance benefits offered free to customers of premium credit cards. Parametric perks could be even more compelling. When a dishwasher breaks, people often forget they have a warranty, have lost the documentation they need or cannot be bothered to go through a claims process. With parametric, the policyholder will be notified by their insurer when they are eligible for a pay-out.

It is not yet clear whether people and businesses are more likely to buy solar panels or seeds from a company offering a parametric perk, but the experiments are happening now. The insurance market should consider what other industries might grow their sales if they offered a parametric benefit. This even applies to traditional insurance. AXA offered its SME customers in Mexico a free parametric benefit last year, which paid $10,000 MXN to businesses affected by Hurricanes Lidia and Otis within 72 hours. In a future soft market, when insurers are fighting to differentiate, a parametric benefit (especially one that, like AXA’s, is proven) could bring a competitive advantage.

Parametric solutions for extreme disruptions

Business interruption • InsTech article

Natural catastrophes and other extreme events, from pandemics to terrorism, can cause sharp revenue drops or make normal operations impossible for businesses. Our latest article looks at the non-damage business interruption losses caused by extreme events and how parametric insurance is filling gaps in traditional coverage.

Latest parametric opportunities

Are you an insurer, MGA or broker with capacity to deploy for parametric insurance?

We know organisations seeking:

• $20 million of crop insurance in India, May-Dec 2024

• $50 million of insurance for wind speeds in Florida and the Gulf of Mexico, Mar-Dec 2024

• $100 million of insurance for Philippines typhoon, Apr-Dec 2024

Can you offer coverage to any of these organisations? Email [email protected] to learn more.

Do you represent an organisation looking for parametric insurance? The Parametric Post reaches parametric specialists across the global (re)insurance market. Reach out at [email protected] to talk about listing your need.

We are not a broker. InsTech, in partnership with ParaRisk (a joint initiative by 20 Twenty Search and Cerchia), makes paid introductions across the parametric insurance market, including brokers, (re)insurers, MGAs and data providers, to help facilitate transactions and grow the market for everyone.

In the news…

Case study: hail triggers Swiss Re pay-out to university

US • Hail

Swiss Re Corporate Solutions has revealed that its client Baylor University in Texas received a parametric pay-out after a large hail event in 2023. Hail exposures led to traditional insurance costs going up, so Baylor chose a parametric policy from Swiss Re. In April 2023, the university incurred damage after hail the size of baseballs. CoreLogic verified the maximum hail size and Baylor University was paid within 14 days.

Blink Parametric partnership brings cyber solution to LatAm

Latin America • Cyber 

Continuing the theme of embedded parametric benefits, Blink Parametric is rolling out its cyber monitoring solution in Latin America through a partnership with Buckler México. Blink Cyber will be available to customers of Ethics Data Analytics, tracking whether personal or business data is compromised and providing real-time resolutions.

Parametrics on the agenda at catastrophe modelling summit

UK • Flood

The CAT risk management and modelling summit 2024 in London features a panel discussion about parametric insurance with AXA Climate, Generali and Africa Specialty Risks. There will be a breakout session with JBA Risk Management and Securis looking at real-life examples of parametric insurance for flooding risks. InsTech’s CEO Matthew Grant is also hosting a panel discussion on the use of AI in risk modelling. The summit is taking place on the 12th and 13th March.

Morocco renews quake cover after $275m pay-out

Morocco • Earthquake

Morocco’s national catastrophe insurance programme has renewed its parametric earthquake reinsurance, according to Artemis. It is not clear which companies were involved in the renewal, but the original policy was brokered by Gallagher Re and backed by more than 20 reinsurers, including CelsiusPro’s Natural Disaster Fund. The policy paid $275 million USD after Morocco’s 6.8 magnitude earthquake on 8 September 2023.

Gallagher Specialty launches parametric team

Climate 

Gallagher Specialty has become the latest broker to launch a ‘parametric insurance centre of excellence’. The new parametric unit is being led by James Bosley, Head of Climate Strategy. It consists of climate risk specialists, parametric brokers and an actuarial and modelling team.

Zurich backs parametric benefit for household solar panels

Italy • Energy • Weather

Plenitude, a subsidiary of Italian energy firm Eni, is offering free parametric insurance to customers who purchase domestic solar panels before 31 March 2024. The parametric policy, underwritten by insurer Zurich, pays out if customers experience lower solar radiation than expected (and therefore generate less energy). Parametric start-up Exante is the calculation agent, using weather data since 2005 to calculate the expected solar radiation and monitoring solar radiation data in real time to determine if a pay-out is triggered. It is a three-year policy, with pay-outs calculated every six months.

MGA Venture to offer parametric covers backed by Vortex

US • Weather • Hurricane

Venture Programs, an MGA specialised in golf and other private clubs, has partnered with Mitsui Sumitomo subsidiary Vortex to offer Vortex’s parametric insurance products to its clients. Vortex underwrites rainfall insurance, covering event organisers against the risk of lost revenue due to bad weather, and supplemental hurricane insurance.

New parametric travel coverage pays out for heatwaves

Weather • Travel

Sensible Weather, which provides parametric weather insurance embedded in travel bookings, has started to offer coverage for high heat. Sensible’s policies are offered at the point of sale to travellers booking hotels, resorts and experience holidays across the US and Europe. Policies pay out in the morning based on the forecasted weather for the day. Sensible says it has sold more than 60,000 weather guarantees covering rainfall to date.

Philippines farmers pilot weather insurance embedded in seeds

Philippines • Agriculture • Weather

Since August 2023, more than 900 farmers in the Philippines have purchased seeds with a parametric weather guarantee included. If certain weather events occur, farmers are entitled to replacement seeds. The pilot programme is being run by pharmaceutical company Bayer, agriculture supplier Jardine, microinsurance firm CPMI and parametric specialist WRMS.

Find out what you’ve missed…

Issue 65 – Hidden climate risks: the future of parametric?

Issue 64 – Promising signs for the parametric flood market

Issue 63 – Parametric solutions for non-damage business interruption

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