Parametric precision helps with pricing: a sunny outlook for cover that weathers all risks

John Warwick, CEO of Excessweather, has been nominated for Intelligent Insurer’s ‘Leaders in Parametric’ programme. 

Warwick started working in the London market in the mid-1970s as a broker and underwriter. Before setting up Excessweather, he’d spent 15 years in Lloyd’s with a QBE syndicate and prior to that set up two companies in London for US insurers. 

His main focus has been catastrophe reinsurance, which has helped him address the various perils covered by parametrics.

When Warwick first ventured into the sector more than a decade ago, the field was still in its infancy, so he decided to do something about it. 

“I found myself at a bit of a loose end,” he recalled, “everybody was talking about parametrics, but nobody had yet specialised in it, so I set up this company purely to specialise in parametrics, both from a broking and consultancy point of view.” 

Over the past 12 years, Warwick has collaborated with more than 70 broking houses across London and overseas, helping them design products and navigate the complexities of parametric covers.

Much better data

He noted that educating clients about parametric insurance had been one of the major hurdles, initially due to the accessibility and quality of data. “At the beginning, it was about getting information regarding weather or earthquakes into a certain format because the contract responded to too much or too little rain, temperature or wind,” Warwick explained. “Now, you can look at crop insurance by pixel or forestry by tree,” he enthused. 

This precision has reduced concerns around basis risk, which arises when weather stations are too far from the insured asset. “Everything's measured from above now, so we don't have that basic risk any more.”

Beyond conventional cases

The adaptability of parametric insurance has led to its application in various industries, but “weather-generated problems” are where it's most effective, according to Warwick.

From crops to festivals, and even breweries, the spectrum of use cases is vast. “We're currently looking at a castle in the UK where rain in the summer impacts visitor numbers,” Warwick said. 

“Parametric crop insurance has been beneficial for both yield and damage, however, in some cases, natural hedging can make parametric solutions unnecessary.” 

He cited an Italian wine producer with vineyards in both hemispheres, where balanced output negated the need for insurance.

“It's a question of people realising it's the right idea at the right price.”

The cost of climate change

Climate volatility continues to shape the landscape of parametric insurance, and thanks to advanced catastrophe models, pricing has become more precise. 

“The pricing of parametrics can literally be done by the physical location, and we don't have to worry about overlying our portfolio against historic losses.” Warwick shared. 

However, affordability remains a sticking point. “Everyone initially thought parametric would be a cheap option. But since most insurers are reinsured, there’s an inherent cost to cover reinsurance."

Despite cost concerns, Warwick sees untapped potential. “In the US, there are between $8 and $10 trillion of deductibles that could be insured for windstorms. It's a question of people realising it's the right idea at the right price.”

A more accurate future

Warwick envisions a future where parametric solutions are more widely adopted and believes brokers “owe it to their clients” to present these covers.

Today, he is particularly excited about advancements in satellite data. “We can now measure crops in 10-metre squares globally,” he explained. One memorable project involved providing historical weather data for a Jamaican farm, even after the local meteorological office had burned down. “We delivered 20 years of data on marijuana yields within two days.”

Learning from hindsight

Looking back, Warwick wishes he had known the importance of direct client engagement. “It would have been much easier if we’d been able to talk to clients directly,” he reflected. “Sometimes brokers are hesitant to push clients too hard, but we could have demonstrated the potential savings and benefits more effectively.”

With more than a decade of experience in the field, Warwick remains optimistic about the sector’s growth and confident his company will continue to bridge the gap between data and practical solutions.

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