Insureds shift savings to parametric coverage as property rates decrease: Descartes’ Vetter

By Mia MacGregor

May 8 - (The Insurer) - As property insurance rates decrease, corporate buyers are increasingly investing savings into parametric coverage to enhance their risk management strategies, according to Daniel Vetter, head of Americas at global parametric MGA Descartes.

While broader property market rates have been decreasing, Vetter emphasized that the story is incomplete without considering the stagnation in terms and conditions.

“Terms and conditions have really not moved substantially. And what that means is self-insured retentions or deductibles haven't moved," he noted.

"The traditional insurance product has become cheaper, but it's still not a great product that is out there."

"We're seeing a lot of corporates, a lot of buyers, taking some of the savings they're getting on the traditional side and investing in buying a parametric cover in an effort to improve the overall program," he explained.

Using a named windstorm as an example, Vetter illustrated how parametric products can serve as deductible buy-downs.

"For a lot of people, that's real money," he said. "If you own a hotel in Miami, and your values are $50 million, $5 million is a lot of money.”

“So we're taking a parametric product and advertising it as a deductible buy-down, as a way to bring that 10% down to maybe 5%, funded through savings they're achieving through premium savings on the traditional side."

Additionally, Vetter noted that while there is adequate capacity in the market for perils such as named storms, hurricanes and earthquakes, capacity for other perils remains limited.

"I would say there's probably enough capacity for those at the moment. However, for tornadoes, hail and wildfires, it's simply not enough. I think the market could absorb more of that capacity or make better use of it."

Reflecting on the evolution of parametric products, Vetter noted that they were once viewed as a last resort in hard markets. However, this perception has shifted dramatically.

“If you go back 10 or 15 years, parametric products were really viewed as a hard market product only, where you go if you don't have any other choice.”

“This has fundamentally changed over the past few years,” he explained, “with more parametric risk players in the market and more products available outside of hurricane and earthquake.”

"And most importantly, market buyers have recognized that the product actually works."

One of the key advantages of parametric insurance is its swift claims process, according to Vetter.

"There is a liquidity element to what we do," he explained, highlighting the ability to collect claims proceeds within 20 to 30 days, as opposed to a year and a half.

In a high-interest, inflationary environment, Vetter emphasized that this rapid turnaround can make a significant difference.

He underscored that while parametric products should not be directly compared with traditional insurance, they offer distinct benefits that complement traditional coverage.

“I'm not suggesting we're agnostic to the market cycle on the traditional side, but I think the market has also recognized that a parametric product should not necessarily be compared with a traditional insurance partner, they do different things," he said.

Founded in 2018 and based in Paris, Descartes Underwriting provides corporate insurance for global weather and natural catastrophe perils as an MGA. In December 2022 it launched full-stack insurer Descartes Insurance, which has a license in several European countries.

The company was established to tackle the insurability of risks exacerbated by climate change and aims to close the protection gap while enhancing resilience against emerging risks for businesses and governments.