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Disasters and Floods
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Natural disasters are increasingly chaotic and changing, and with the hurricane season beginning June 1, insureds will need to explore a variety of options to protect their assets and businesses, including parametric insurance.
“Clients need different tools to manage natural disaster risks,” said Cole Mayer (pictured), senior vice president – senior structurer at Swiss Re Corporate Solutions.
“In addition to traditional, indemnity-based insurance, parametric options exist to plug holes that more common coverage doesn’t contain.”
Mayer spoke to the Insurance Business during RIMS 2023 in Atlanta about the advantages of physical parameters in parametric insurance and how it can work alongside traditional coverage in a symbiotic way.
Pre-judge a claim for faster payments
The main difference between the more standardized and widely adopted insurance and its parametric alternative is a more holistic view of how a loss is triggered in the event of a catastrophic event.
“What makes parametric unique is the ability to trace a claim back to certain physical details that can be pinpointed shortly after an event occurs,” Mayer said.
In terms of a hurricane, parametric coverage will take into account how strong the wind blows at a point causing damage to a building, which can be confirmed days after the loss of a carrier is reported.
“It then pays a claim based on a more formulaic approach,” Mayer said. “If the wind blows a little stronger, then the charge will go up as well.”
As a result, the money can be quickly tracked by the client because the claim is basically pre-judged with some physical incentive.
“Parametric can pay off quickly and very broadly,” Mayer said. “The money is available to the client in a few days or weeks with no financial deductible limit.
“This can be used immediately to help cover any financial losses resulting from the event, which may allow an insured to quickly recover and begin repairing the damages that caused the disruption.”
“It’s like a toolbox for natural disaster management”
Rather than viewing parametric and indemnity insurance as two separate forms of coverage, the two can work together in strong ways.
“It’s like a natural disaster risk management toolbox,” Mayer said. “You have separate mechanisms for responding to different problems, all with the goal of creating a short-term solution.”
By the nature of its design, parametric insurance is very broad and somewhat imprecise, since it is not intended to cover the totality of actual losses in the face of an event, but to provide supplemental coverage that is not included in more standard packages.
“Indemnity-based insurance is great for what it’s meant to do. It can’t be everything to everyone, right? It’s not an either-or question. Really, can you find a way to balance the two? “
For example, Mayer points out how cities, counties and university systems are some of the potential clients that can benefit from these symbiotic coverages to speed up their reaction to the loss caused by public services.
“It’s not necessarily damage to the actual buildings, but the surrounding areas that can make access to these properties more difficult,” Mayer added.
The company, recognized as the second largest reinsurer in the industry, has announced that it is parting ways with the Net Zero Insurance Alliance, following in the footsteps of Munich Re and Hannover Re.
There was no official statement outlining a reason for its departure, but the company told Reuters it had not changed its strategy going forward.
Swiss Re has a Group Sustainability Strategy 2023–2025, which applies to all the company’s business activities, including its Corporate Solutions division. The company aims for net-zero greenhouse gas emissions by 2050.
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