How can clients control natural catastrophe risks?
How can clients control natural catastrophe risks? | Insurance Business America
Catastrophe & Flood
How can clients control natural catastrophe risks?
Top commercial insurer gives its tips
Catastrophe & Flood
By
David Saric
Natural catastrophes are only getting more disruptive and dystrophic, and with hurricane season commencing on June 1, insureds should explore different options to safeguard their assets and businesses, including parametric insurance.
“Clients need different tools to manage natural catastrophe risks,” said Cole Mayer (pictured), senior vice president — senior structurer at Swiss Re Corporate Solutions.
“In addition to traditional, indemnity-based insurance, parametric options are there to plug in the holes that more standard coverage leaves empty.”
Mayer spoke with Insurance Business during RIMS 2023 in Atlanta about the advantages of parametric insurance’s physical parameters and how it works alongside traditional coverage in a symbiotic way.
Pre-adjudicating a claim for quicker payouts
A primary difference between more standardized and widely adopted insurance and its parametric alternative is a more holistic look at how a loss is triggered in the event of a catastrophic event.
“What makes parametric so unique is the ability to trace a claim back to certain physical specifications that can be pinpointed shortly after an event,” Mayer said.
In terms of a hurricane, parametric coverage would consider how hard the wind blew at a certain point that triggered damage to a building, which can be confirmed days after a loss has been reported to a carrier.
“It then pays out a claim based on a more formulaic way,” Mayer said. “If the wind blows a little bit harder, then the payout would increase as well.”
As a result, the money can be fast tracked to the client since the claim is essentially pre-adjudicated by certain physical stimuli.
“Parametric can pay pretty quickly and is very broad,” Mayer said. “The money is available to the client in a matter of days or weeks with no financial deductible limit.
“It can be used quickly to help cover any financial losses resulting from the event, which can allow an insured to rebound more promptly and begin to remediate the damages that have caused a disruption.”
“It’s like having a toolbox to manage natural catastrophe risk”
Rather than viewing parametric and indemnity insurance as two distinct forms of coverage, the two can work together in robust ways.
“It’s like having a toolbox to manage natural catastrophe risk,” Mayer said. “You have separate mechanisms to respond to different problems, all with the purpose of creating one succinct solution.”
By nature of its design, parametric insurance is very broad and a little less accurate, since it was not meant to address the totality of actual losses in the face of an event, but provide supplemental coverage that is not included in more standard packages.
“Indemnity-based insurance does very well for what it’s meant to do. It just can’t be everything to everybody, right? It’s not an either-or question. It’s really, can you find a way to balance both?”
For example, Mayer pointed out how cities, counties and university systems are a few potential clients who would benefit from these symbiotic coverages to speed up its reaction to a loss due to services to the general public.
“It doesn’t even have to be damage to actual buildings, but surrounding areas that may make accessing these properties much more difficult,” Mayer added.
The company, which is recognized as the second largest reinsurer in the industry, announced it has parted ways with the Net Zero Insurance Alliance, following in the footsteps of Munich Re and Hannover Re.
There has been no official statement outlining a reason for its departure, but the company told Reuters that this has not changed its sustainability strategy.
Swiss Re has a Group Sustainability Strategy 2023–2025, which applies to all business activities of the firm, including its Corporate Solutions division. The company is aiming for net-zero greenhouse gas emissions by 2050.
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