Alternative risk transfer methods, including insurance-linked securities, parametric insurance and assorted bespoke coverages, are pushing further into primary retail insurance markets and closer to customers, gaining favor in the insurance industry among suppliers and buyers alike.

Driven by a deluge of alternative capital bearing down on the insurance sector and helped along by policyholders looking for options and armed with better information, alternatives besides conventional insurance are taking hold.

“The capital is coming into the insurance marketplace and is looking to back some of these products,” said Duncan Ellis, U.S. property practice leader for Marsh LLC in New York.

Alternative capital, which some also call third-party capital or nontraditional capital, continues to grow and has seen its acceptance expand as well.

“It all works,” Michael Gruetzmacher, Aon PLC’s managing director of the brokerage’s alternative risk solutions team in Chicago, said of capital from different sources such as insurance, reinsurance and capital markets. “At the end of the day, capital is capital.”

“There is no doubt that alternative capital will become an ever-increasing part of the insurance business,” said Gary Marchitello, New York-based head of property broking for Willis Towers Watson PLC.

Parametric insurance, one type of alternative risk transfer, is coverage that can be linked to a specific data point, measurement or index.

For example, a policyholder could buy property insurance that is triggered if wind speed in a certain area exceeds an agreed threshold and claims are paid without the need to review damage.

“Parametrics are good because you can tie them to anything which can be indexed and measured,” Mr. Ellis said.

Parametric insurance is “not necessarily a new product but has become one of the recent ‘hot topics’ people are talking about,” said Susan Hiteshew, a member of the Risk & Insurance Management Society Inc.’s board of directors and senior director of insurance for the Americas with Marriot International Inc.

“The parametric solutions have been around for quite some time, but because of the recent hurricanes last fall, I think that brought a lot of visibility to the solutions and a lot more people looking at the solutions from a number of different angles,” Ms. Hiteshew said.

“What I see as the future of insurance and where I’m spending a lot of time with clients is talking about the event-driven or parametric space,” Mr. Gruetzmacher said. “Why I think it’s valuable is because it’s a different way to think about how you deploy insurance capital to solve problems that have historically been unsolvable with insurance.”

“I think there are some interesting uses for this type of product,” said Jennifer Hills, director of the office of risk management services for the King County Department of Executive Services in Washington state. “Not only for damage to our property, but maybe some business interruption, some emergency response expenses, or even disruption of tax revenues.”

In September, the island of St. Maarten purchased parametric insurance coverage for tropical cyclones, earthquakes and excess rainfall through the Cayman Islands-based CCRIF, formerly the Caribbean Catastrophe Risk Insurance Facility SPC, which includes 19 Caribbean countries and one Central American country.

Although specific details of St. Maarten’s coverage are proprietary, CCRIF policies begin June 1 each year for a period of 12 months and are renewed each year, according to a statement from the organization.

Coverage is triggered when modeled losses from tropical cyclones, earthquakes and excess rainfall exceed an agreed level.

CCRIF members can purchase a maximum coverage of $100 million for each peril.

The expansion of parametric coverage has been shepherded at least partially with improved data and analytics, sources said.

The alternative risk transfer markets “have raised the profile of certain data, allowing both sides the ability to better understand the risks they are dealing with,” said Oliver J. Horbelt, head of capital partners, reinsurance division, at Munich Reinsurance America Inc. in New York.

“I think improved data does make it easier for a public entity to purchase parametric coverage,” Ms. Hills said.

“We definitely have earthquake risks and do purchase earthquake insurance, but I think we could supplement that with parametric cover,” Ms. Hills said.

Parametric coverage is also attractive because it eliminates protracted and complex claims processing and can pay out in less than a month, according to sources.

“People are looking for more certainty and a shorter claims process,” Mr. Ellis said.

“One of the values of parametric insurance is that you get your claim payment quickly and you know exactly what you’re getting,” because it is agreed to in advance, Ms. Hiteshew said. “From an accounting standpoint and the time value of money, it’s very much a part of the value proposition of the solution.”

“When a country’s policy is triggered by a hazard event, the facility makes a payout to the government within 14 days,” according to documentation from the CCRIF.

Alternative risk transfer can also be used to approach novel challenges or emerging risks.

At Allianz Global Corporate & Specialty SE, “ART functions as an incubator of new ideas solving complex, often tailored issues for our clients” said Karsten Berlage, New York-based managing director for the company’s alternative risk transfer unit.

“Cyber is obviously a hot topic,” said Jenise Klein, New York-based managing director for Allianz Global Corporate & Specialty’s alternative risk transfer unit.

“The question is out there as to whether cyber has a place in the capital markets as appetite expands beyond traditional property catastrophe, and it will be interesting to see how that develops, especially as data modeling and technology continue to advance.