The varied factors driving demand for parametrics

By Henry Gale

April 3 - (The Insurer) - Although the various tools included in the category of parametrics have some things in common, the factors behind their adoption are not always the same.

The results of Parametric Insurer’s recent survey suggest that the market’s growth last year was more pronounced in natural catastrophe coverage than other weather-related products.

One of the reasons organisations buy parametric nat cat policies is that traditional insurance is no longer available for certain risks where it had been on offer before. New exclusions, sublimits, or higher deductibles left gaps that companies felt they could only fill with parametrics.

This is less likely to be the motivation for purchasing coverage for rainfall or heatwave events, for which most organisations have never bought dedicated insurance policies in the past. Other factors, such as changing exposures to climate risk, are behind the demand for these solutions.

Newly launched covers for commodity price changes and reputational damage also target previously uninsured risks. The companies behind the products cite supply chain uncertainty and the rise of social media, respectively, as demand drivers.

The motivations for customers to choose parametric covers for cyber risks also vary as new products emerge.

While the post-breach business interruption risks covered by Descartes’ parametric product are included in some conventional cyber policies, the insurer says in this issue that the buyers of its product so far have predominantly been new to cyber insurance.

Parametrix’s digital downtime insurance covers risks that most cyber policies do not, and the MGA now offers it as a performance guarantee for technology companies.

The idea is that tech products become more appealing when the risk of downtime is covered, not unlike how parametric “sunshine guarantees” have been used to encourage households to adopt solar panels.

In travel insurance, the growing use of parametrics is down to yet other factors. Automated payouts mean insurers’ claims departments are less likely to be overwhelmed after events such as the mass flight disruption at Heathrow Airport last month.

Mapfre’s parametric covers have also encouraged customers to choose premium travel insurance packages and boosted customer experience, its chief innovation officer Leire Jiménez told Parametric Insurer recently. Axa and Ping An are among the latest insurers to introduce similar products.

Overall, the market for parametric risk transfer appears to be growing, but all its constituent parts are neither growing uniformly nor for the same reasons.