Multiyear parametric covers can help organisations manage climate variability: Generali's Edwards

By Henry Gale

March 31 - (The Insurer) - Multiyear insurance policies can help organisations build resilience to weather perils affected by climate patterns such as the El Niño–Southern Oscillation, Generali's Simon Edwards said at the Insurtech Insights Europe conference in London.

In a panel discussion focused on climate and catastrophe resilience, Generali Global Corporate & Commercial's head of parametric underwriting said that cyclical climate factors are one of the reasons corporations choose multiyear rather than single-year parametric covers.

Edwards explained that the El Niño climate phenomenon has a strong effect on certain perils in certain regions, such as droughts in Australia and flooding on South America's west coast.

This can cause sharp changes in the cost of parametric insurance policies, where climate factors significantly contribute to pricing.

"We saw it a couple of years ago when there was a positive El Niño in the Southern Hemisphere's summer, so our wildfire prices just rocketed," Edwards said, referring to Australia as an example.

"Not only was it a positive El Niño, but it was a positive Indian Ocean Dipole, and those two kind of stacked on each other and they made your expected loss, and so therefore the price that you charge to the customer, that bit more."

Multiyear policies for risks that fluctuate in these ways can give risk managers more certainty about the cost of insurance over a longer period and can be particularly useful if the timeline of the policy fits with their spending cycle, Edwards said.