Parametric is ‘like internet in 1993’: early days, big potential, says LIRG’s Groenheide

‘Lack of understanding has slowed parametric adoption more than any technical limitation.,’ says Mark Groenheide, of LIRG, who sets out what is to be done to turn things around.

Key points:
Education, not tech, is the main barrier
Commercial demand is emerging
Venezuela a ‘massive opportunity’

Parametric insurance in Latin America is still at an early stage of adoption, but the building blocks for far faster growth are increasingly in place. The challenge, according to Mark Groenheide, founder, CEO and president of Algorithmic Insurance Services, which now trades as Latin International Reinsurance Group (LIRG), is not whether parametric works, but whether the market understands what it is designed to do.

“I think our industry, for the most part, does a really bad job informing people about what parametrics actually are, which is just fact-based insurance,” Groenheide told Miami Reinsurance Week Today. “There are calculations and algorithms built into these things, but when you break it down, it’s actually very simple. Precisely defined things happen, and there’s a specified outcome.”

That lack of understanding, he believes, has slowed adoption more than any technical limitation. Too often, parametric is positioned as complex or niche, rather than as a practical way to address exposures that traditional insurance struggles to cover.

“We as an industry are failing our customers,” he said. “We can either enhance existing products to make them better, or offer solutions that weren’t achievable before in terms of risk transfer.”

“When partnered with traditional insurance, parametric really is a phenomenal way to do things.”

‘Like the internet in 1993’

From Groenheide’s perspective, parametric insurance and reinsurance is still in its infancy. “Think of parametric for a moment as if it’s the internet. It’s like we’re in 1993. People are just starting to learn about it.”

Despite having existed in various forms for decades, parametric has yet to become a routine part of mainstream insurance programmes. Groenheide expects that to change, particularly as natural catastrophe losses rise and non-damage disruptions become more financially material.

“When partnered with traditional insurance, it really is a phenomenal way to do things,” he said.

Latin America, he argues, is one of the regions where parametric adoption feels more grounded in reality than theory, compared to the US. Historically, most parametric activity in the region has been driven by sovereign or quasi-sovereign programmes. That is now starting to broaden. “We’re now seeing more commercial customers,” he said, particularly where parametric is used to complement existing programmes rather than replace them.

LIRG has been active across Latin America, Central America, the Caribbean and Mexico, providing reinsurance and retro capacity and supporting programme design. A significant part of that work, Groenheide said, is focused on execution and education.

“This is a very specialised type of cover,” he said. “If it’s done poorly, it can hurt the reputation of the whole market. The last thing we want is a big miss on parametric in the news.”

One recurring issue is over-simplified structures. “I’m very big on using dual triggers, or sometimes triple triggers,” said Groenheide. Single-trigger structures, particularly for perils such as hurricanes, can behave in ways that surprise buyers. While multiple triggers can add cost, “the customer is always better off” because the policy is more likely to respond in line with how losses are actually experienced.

Another common mistake is setting thresholds too high. “People structure policies for the biggest event,” he said, “and forget that smaller events can still cause serious disruption.” Even without physical damage, access issues, road closures or supply-chain interruption can create losses that traditional insurance does not respond to well.

Transparency remains another area where he believes the market has work to do, extending beyond triggers and payout mechanics to how programmes are marketed and placed.

Looking ahead, he sees strong potential in areas such as SRCC, terrorism and supply-chain disruption, particularly where risks are difficult or expensive to insure traditionally. 

Geographically, he pointed to markets at different stages of development. “Colombia has been one of our biggest markets,” he said. “Chile will, in the future, likely be a huge opportunity, given its very large exposures that haven’t been addressed.”

Brazil has “unique opportunities” for the right structures and partners, but is complex. The most forward-looking opportunity is Venezuela. “We believe there’s been strong positive developments in the country,” Groenheide said. “In the future, we believe Venezuela will be a massive opportunity, and as that continues to evolve, we’re monitoring very closely.”

Miami Reinsurance Week plays a central role in these conversations. Groenheide described it as a place where Latin American buyers, brokers and reinsurers increasingly meet on equal footing, alongside growing interest from European markets. LIRG is hosting a kick-off fiesta on the first night of the week, marking both a social start to the event and the firm’s continued focus on the region.

“Latin America is not an afterthought for us,” he said. “It’s our priority. It’s the main thing that we do.”

Mark Groenheide is the founder, CEO and president of LIRG. He can be contacted at: Mark.Groenheide@lirg.com.

For more news from Miami Reinsurance Week Today, click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.