Parametrics could become more mainstream in commercial sector: Airmic, Swiss Re, Marsh

Parametrics, a specialist form of re/insurance used in catastrophe bonds, could become more prevalent in the commercial sector, enabling risk managers to address limitations in traditional insurance.

This is according to a report from Airmic, published today in collaboration with Swiss Re Corporate Solutions and Marsh.

The report suggests that parametric solutions can help provide clarity and certainty of coverage and improve the speed of claims resolution for risks that might otherwise be full of exclusions and complex policy wordings.

"Underwriters and buyers agree in advance that a claim will be triggered by a pre-agreed occurrence or movement in an index without any need to investigate the precise extent or cause of damage," the report stated.

Further benefits include wider, more tailored coverage, along with rapid, more predictable payment when claims are made.

Parametrics are said to also protect risks that traditional insurance tends to shun such as disruption caused by ash clouds and pandemics.

Risk managers have started to use parametrics in travel, retail and the agricultural sectors, but could be developed to protect intangible assets and the risk of cyber-damage.

“This is an area of insurance that has the potential to grow rapidly, both in terms of the extent of its application and the number of companies that use it,” said Airmic research and development manager Georgina Wainwright. “It can provide more options and ultimately ensure that insurance becomes a truly strategic purchase.”

Christian Wertli, head of innovative risk solutions as Swiss Re Corporate Solutions, added: “Concerns about large, complex risks directly related to business operations are on the rise - it’s about protecting revenues. Parametric solutions can be used as a business tool to provide certainty and speedy access to liquidity when most needed. Risk managers are enablers and we can work together to develop highly bespoke protection.”

Steve Harry, risk finance consultant, financial solutions group, Marsh, said: “Parametric insurance solutions can help firms reduce uncertainties around cover and cash flow arising from traditional policies and form part of their financial protection. For risk managers, taking the time to understand their firm’s ability to withstand future ‘shocks’ and gaining the support of the board are crucial first steps to incorporating parametric insurance solutions into their overall risk management strategy.”

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