Alternative options can fill gaps in traditional policies
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Parametric insurance is being investigated by some to address nonphysical damage business interruption risks.
Parametric products can be used to insure risks not usually covered by the traditional insurance market, such as revenue losses that are not directly related to property damage, said Stephane Godier, regional head Americas, Axa Climate, a division of Axa SA.
For example, a transportation business dependent on agricultural transport for a material portion of its revenue, can be indirectly hit by the effect of climate change on crop production. “There is huge potential in the ag supply chain because a lot of players along the supply chain are exposed to systemic risk because of climate risk,” Mr. Godier said.
“It’s another way to look at business interruption exposure that isn’t attached to property,” said Evan Stait, commercial account executive at Hub International Ltd. in Kelowna, British Columbia.
A municipal snow removal budget, for example, exhausted early by excessive snowfall could be covered with a snowfall indexed coverage, he said. Conversely, a ski resort could be insured against a lack of snow on its slopes.
The COVID-19 pandemic, which has led to more than 1,000 lawsuits related to business interruption claims, has also caused some to consider parametric coverage.
“People are realizing because of the pandemic that there are bigger, broader nonphysical-damage business interruptions that can occur, and because these products are designed to pay based on an event occurring and not because you’ve suffered damage, people are taking a hard look at it now,” said Chad Wright, head of risk analytics and alternative risk transfer in the United States and Canada for Marsh LLC in Atlanta.
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