Brokers who thrive both on client education and on having the right solution to meet clients needs, even when it seems like options have been exhausted, will probably enjoy the parametric insurance conversation to be had with some commercial lines clients.
The product is not new in Canada, but it is evolving and it is expected to be growing in popularity as more companies come to grips with environmental exposures which could impact their businesses.
What is parametric insurance?
Parametric insurance is a coverage for those with an insurable interest, which pays out when a certain, independently verifiable triggering condition or threshold is met. When a triggering event or condition is met, the policy pays out the specified benefit – no claims adjusters or engineers required.
“It is an agreement to make a payment upon the occurrence of a covered event meeting or exceeding a predefined intensity threshold, as measured by an objective value (or parameter – hence the name 'parametric insurance'),” explain authors of the Swiss Re Corporate Solutions report, What is parametric insurance? “The covered events could be earthquakes, tropical cyclones, or floods where the parameter or index is the magnitude, wind speed or water depth respectively.”
“Parametric insurance is not a kitchen table policy,” says Jason Wallace, director of market relations and business development with Western Financial Group. “It definitely gets overshadowed, but it is being deployed very tactically and very deftly by certain insurers to help policyholders.”
He says the policies are not any more or less work than the average policy to place, they are just another avenue to explore and tool to use.
“I would argue that a broker or an agent would have these conversations naturally, or would like to have these conversations naturally, as part of the discussion they are having with their client about the environment they operate in,” he says.
In setting up a parametric policy, Youssef Baki, senior structurer, alternative risk transfer with Swiss Re Corporate Solutions, says there are usually three parties at the table – the client, their broker and the insurer. Questions put to the client revolve around the client’s pain points, the tools they’re currently using and what remaining exposures are causing them concern.
“You have these risks. Some of them you want to retain. Others you want to transfer out,” he says. “Having these conversations to come up with a solution that makes sense for them – those are the fun parts of the job. Exposure, budget, type of event they want coverage for – we really get to tailor those covers to meet the client’s needs.” Baki also points out that parametric discussions can also happen throughout the year, not just at renewal time.
Although parametric insurance is, admittedly, not a hot commodity to sell far and wide, there is still a sense of excitement that proponents of the product seem to possess.
“I think the idea is that when you find a vulnerability and say this is not being addressed, there something you can create to solve that problem for somebody,” says Aviva’s James King, head of fronting with the company’s global, corporate and specialty team. “There’s a wonderful sense of excitement about that.”
For brokers interested in providing this coverage to their clients, it’s just a matter of reaching out to parametric providers to discuss how these solutions might fit with the insured’s overall risk management framework, say insurers interviewed.