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Swiss Re Corporate Solutions
Parametric insurance coverage has been available for more than a decade but has often been seen as expensive compared with traditional coverage.
In the hard market, though, parametric coverage can provide much needed coverage at a comparable price for some tough risks, such as hail exposures, and the contracts are much simpler than traditional insurance policies, said Cole Mayer, San Francisco-based vice president for Swiss Re Corporate Solutions, a unit of Swiss Re Ltd.
The insurer developed a parametric coverage for hail last year, and the product is a recipient of a Business Insurance 2021 Innovation Award.
Interest in the coverage comes mainly from auto dealerships, which have open car lot exposure; public entities, including universities, cities and counties; and the solar industry, which deploys ever more glass panels facing skyward into harm’s way.
Swiss Re has bound 40 parametric hail policies since its soft launch in March 2020 and recorded more than $1 million in first-year premium, Mr. Mayer said.
The policy trigger is based on the size of a hailstone, in quarter-inch increments, as verified by CoreLogic Inc., an Irvine, California-based data and analytics provider, he said.
Insured locations are defined as points of latitude and longitude. Limits are available up to $5 million, or potentially higher depending on the exposure, geography and client profile, Mr. Mayer said.
Parametric contracts are shorter and simpler than traditional insurance contracts involving the same perils, he said. For example, a parametric contract can be nine pages, with few if any exclusions, compared with 90 or more pages for a traditional contract laden with declarations, exclusions and supplements.
Parametric coverage also pays out quickly once a loss has been verified. The Swiss Re product is designed to pay out within 30 days.
Parametric covers can complement traditional coverage with rates rising in a tight market, Mr. Mayer said.
“With limits generally shrinking and deductibles increasing, that’s where parametric can really help to fill one or both of those gaps,” he said.
For traditional dealer open lot coverage, for example, “what you’re seeing … is deductibles going up significantly. Sometimes limits are being constrained, and pricing continues to increase. That’s why we’ve seen a lot of the success we’ve seen in the dealer open lot space,” he said.
While higher comparative pricing has long been the Achilles heel of parametric coverage, parametric hail coverage can now supplement traditional cover “at a price point that is similar or sometimes a little less expensive than the equivalent traditional insurance,” he said.
Restrictions on in-person collaboration during the COVID-19 pandemic do not seem to have stifled innovation in the insurance and risk management sector.