REFILE-NormanMax’s Groenheide: Parametrics' mainstream adoption driven by paid claims, soft market, education

By James Thaler

May 29 - (The Insurer) - Mainstream adoption of parametrics is being driven by a growing volume of claims being paid, as well as increased recognition that the product addresses risks overlooked by the traditional market and better education, according to NormanMax’s Mark Groenheide.

Groenheide made those comments in an interview with The Insurer TV on the sidelines of this month’s RIMS Riskworld event, where he also detailed the startup firm’s insurance, reinsurance and embedded strategies.

NormanMax launched the first dedicated parametrics Lloyd’s syndicate last year, and Groenheide said the company is seeing “big growth and adoption” of parametrics, with buyers spanning small commercial, multinational firms, homeowners and insurers themselves.

“Parametric now is becoming more mainstream, but it's really the best way to transfer risk for natural disasters, in terms of being able to have quick liquidity, very limited exclusions, and it brings insurance to a place where it's much more relevant,” Groenheide commented.

“It's able to address systemic risks that otherwise traditional insurance policies or traditional reinsurance policies have a very difficult time doing,” he continued.

“And one of the things that I think is just amazing is the societal impact that it is having, and we're able to address things that otherwise sometimes would be non-addressable in the traditional market,” he note

Buyers can get better coverage using a parametric product, Groenheide argued, saying that such policies tend to cover risks often unaddressed by conventional policies.

“Our policies are based on the probability of the event happening, and in that case, those primary and secondary physical characteristics of the risk aren't necessarily taken into account (in traditional policies), and it allows us to have a much wider net to bring people into the financial system.”

PAID CLAIMS DRIVING ADOPTION

Groenheide said NormanMax has so far had three losses, the largest of which is for $12.5 million, and made the case that the payment of claims is showcasing the product’s value and driving greater levels of adoption.

“One of the big changes that we've seen with parametric is that it's not so much the losses that are excluded on the traditional side that are driving growth in parametric, it's the losses being paid on the parametric side,” he commented.

“When someone has a loss and they're paid before any adjuster on the traditional side could even come out, potentially, it really changes people's mindset of what's possible,” Groenheide added.

“Our first year, we ended up paying some claims in Milton, and the word has gotten out, and we're starting to see many referrals, and people who were happy with the experience refer us to a variety of other carriers, and we're just seeing many, many more reinsurance transactions,” he continued.

Groenheide said that parametric reinsurance transactions are “through the roof,” with an especially big uptick in interest in quake coverage to address concentration risk, adding that interest in hurricane coverage is also “really big right now.”

“We're seeing a tremendous amount of interest in hurricane, and specifically on multi-trigger policies. Single-trigger policies are very last year,” he said.

“People want multiple triggers because there's a lot of instances in which, and we had this in our own book of business, one trigger didn't trigger but the other trigger did, and we paid claims in a variety of different ways because of that,” Groenheide explained.

“So, I think that that's really where the industry is going, and those that can't offer multiple triggers are really going to be left behind,” he observed.

NormanMax closed its acquisition of UK-based parametric insurtech FloodFlash earlier this month, with Groenheide saying that the acquired firm bring “really great” intellectual property, and that NormanMax is looking at other possible acquisitions as well.

“We're trying to bring in as many people into the fold. Because really, I think the biggest challenge with parametric in general is the distribution. We have that, we have that built. We're very excited about that,” Groenheide explained.

“And there's a lot of really smart entrepreneurs, but they just lack the distribution, and we can provide them that. So, we're trying to be a place for them to land,” he continued.

MASSIVE ‘BLUE OCEAN’

Groenheide said that market conditions have softened, and that “really smart brokers right now are adding in parametric because the cost savings have existed now for the first time in many years, and folks still have their budgets, and retentions haven't really lowered.”

“So, we're having more conversations than ever about parametric, and the use of parametric. And the adoption and the hit ratios are just skyrocketing,” he commented.

Groenheide called the amount of “blue ocean” to address non-transferred risks “massive.”

“It's really exciting to bring that into the insurance and reinsurance market. I think we haven't really understood where parametric will end up going, but in my mind, it will be an embedded product, similar to boiler and machinery,” he continued.

“I like to make the statement that I think every E&S policy in the United States by 2030 will at least have some form of parametric within it, and it does a great job at reducing retention,” Groenheide declared.

Watch the full interview with NormanMax’s Mark Groenheide to hear more on:

• How quick liquidity, limited exclusions, and claims paid are driving parametrics adoption

• Parametrics becoming attractive in softer market with insureds have more dollars to spend

• The importance of having a multi-trigger parametric product to ensure coverage

• Why insurers’ interest in parametric reinsurance is “through the roof” to address concentration risk

• And more…