Parametric moves from niche to essential tool: Augment Risk

Parametric insurance has now moved way beyond what were once experimental roots. But a new phase of growth will depend on deeper data, better modelling and more consistent market practices. That view is shared by Kurt Cripps, partner and head of global parametric speciality at Augment Risk, and Paul Ramiz, the firm’s associate partner, parametric, who together have overseen the placement of billions of dollars of parametric risk over the past decade.

“There were once one or two brokers and one or two markets. Now you have a global footprint.”

Ramiz says the change has been dramatic. When the two began working together, parametric was firmly on the fringes of the market. “There were once one or two brokers and one or two markets,” he said. “Now you have a global footprint.” Over more than ten years, our team has placed billions of dollars of cover and seen hundreds of millions paid out in claims, an experience that has helped build confidence among both buyers and sellers.

That track record, Ramiz argues, explains why parametric has moved beyond experimentation. Buyers have seen policies perform as intended, while capacity providers have achieved their expected returns. “There are more buyers, more sellers and certainly more brokers,” he said, while stressing that the market still has significant room to grow before it can be considered fully mature.

Cripps is slightly more cautious in his assessment, describing parametric as still embryonic in many respects. He traces its rapid expansion in recent years back to the catastrophe losses of 2017, when Hurricanes Irma and Maria triggered a sharp hardening of the market. “Pricing went through the roof and clients were looking for alternatives,” he said. “Parametric came to the fore.”

Just another tool

Since then, parametric has increasingly been viewed as part of a broader buying toolkit alongside cat bonds and retrocession. Cripps points to the sheer scale of the ecosystem now supporting the market, with dozens of data providers, around 40 capacity markets and more than a dozen brokers active globally. For him, those signals point clearly to a strong future.

Client expectations have evolved alongside that growth. Ramiz highlights that parametric buyers have always demanded clarity around how products work, particularly how losses are evidenced and paid. The appeal of parametric, he says, lies in avoiding many of the friction points associated with indemnity claims, especially delays and disputes. “How it’s structured and how it pays out is really critical,” he said.

As understanding has improved so, too, has confidence. Ramiz notes that basis risk has been significantly reduced as buyers and sellers have become more familiar with the mechanics of parametric structures. “Clients understand much more now what they’re buying,” he said, adding that this growing familiarity is supporting scalability.

Cripps agrees, but cautions that simplicity can be deceptive. While parametric structures might appear straightforward, the underlying calculations have become increasingly complex. “The devil is in the detail,” he said. Advances in data availability have transformed the market, enabling more sophisticated indices and modelling approaches. Augment Risk has been a strong advocate of the use of stochastic modelling, traditionally associated with indemnity business, to help clients understand how parametric products behave across a range of scenarios.

A mixed client base

That sophistication is particularly important for Augment Risk’s core client base, which includes reinsurers and insurance-linked securities (ILS) funds. Cripps says these buyers are no longer interested in off-the-shelf solutions. Instead, they are looking for structures that help manage portfolio volatility or support capital modelling objectives, in much the same way as cat bonds or retro structures do.

“With better market practice and brokers acting as true advisers, you should see products that do exactly what they say on the tin.”

One of the most significant developments has been the emergence of dedicated parametric modelling. Cripps points to growing demand for products tailored to underlying exposure data, rather than generic regional triggers. Embedded parametric solutions, in particular, are becoming more prominent as clients seek seamless integration with traditional programmes.

Despite this progress, Cripps believes the market still needs to show consistency to continue to develop. Proprietary products that cannot be syndicated and carry significant basis risk remain a challenge. He sees moves towards standardisation, including initiatives at Lloyd’s, as an important step forward. “With better market practice and brokers acting as true advisers, you should see products that do exactly what they say on the tin,” he said.

Data quality and independence remain central themes. Cripps draws parallels with the energy market, where simple, transparent and independently governed indices have underpinned parametric success for decades. Augment Risk has adopted a similar approach, relying on robust third-party data sources such as National Hurricane Center data for hurricanes and satellite data for wildfire.

Flood remains a notable exception. Cripps explains that the complexity of flood risk, with multiple interacting variables, makes it difficult to achieve sufficient correlation using current data. While Augment Risk is not yet comfortable selling flood products, he expects that to change as data and satellite technology improve.

Geographic reach is another differentiator. Augment Risk has grown and structured its team across London, Bermuda, North America and Miami, with Miami serving as the gateway to Latin America and the Caribbean. Cripps highlights strong growth opportunities in markets such as Puerto Rico, Chile, Colombia, Brazil and Peru, supported by regulatory change and increasing demand for alternative risk transfer.

Managing expectations is critical as the market continues to innovate. Cripps is clear that parametric is not a panacea, and that product development requires careful research and testing. Wildfire is a key growth area, while severe convective storm and flood are being explored from a research and development perspective.

Embedded parametric solutions, he believes, might represent the biggest long-term opportunity. By integrating parametric into mass-market products, they offer a cost-effective way to broaden understanding and expand market penetration.

Miami Reinsurance Week plays a central role in that strategy. Cripps describes it as one of the most important conferences of the year, increasingly used as a focal point for parametric renewals as well as a forum for client engagement. With strong talent on the ground and growing regional demand, Augment Risk sees the region as central to the next phase of parametric growth.

Kurt Cripps is head of global parametric speciality at Augment Risk, and Paul Ramiz is associate partner, parametric. They can be contacted at kurt.cripps@augmentrisk.com and paul.ramiz@augmentrisk.com, respectively.

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