Insureds’ interest in parametric solutions is growing ever stronger with “the vast majority” of clients now contemplating the use of such protections, according to Marsh’s Chad Wright.
Wright, who is the managing director and North American leader for alternative risk transfer at the broker, said that “the reality is virtually every client in every renewal is contemplating something different and creative, and [parametrics] is part of the toolkit we bring”.
As he explained, over the last couple of years, the topic of parametrics has gone from being a part of 10 to 15 percent of client discussions “to probably 80 to 90 percent of our conversations”.
Wright made the comments during the inaugural New Paradigm Global Parametric Insurance & Reinsurance Conference on Thursday.
His fellow panellist Dave Roque, senior executive at USI, said “every insured that I speak with is exploring it”.
“Everyone that I speak with is looking at the product and they’re exploring it,” he said.
“If [clients] don’t know about [parametrics], it’s going to be a conversation we’re going to have because they’re going to need to know. They’re going to need to know how the product responds and what else is available in the marketplace,” Roque said.
Replacing traditional wind capacity?
Wright said some clients are now considering parametric solutions as a replacement for entire wind-exposed programmes rather than just a supplement.
According to Wright, his company has “a number of clients” that are now contemplating the use of parametric solutions to replace either a significant part of their primary wind or quake layers, or the entirety of their cat-exposure.
“We have a number of clients, one in particular, who ended up taking all of the wind out of their programme and going with a parametric solution. There’s a huge opportunity to think differently and creatively about how to value that solution,” he said.
For Mark Groenheide, SVP for E&S at insurer GuideOne, parametrics should be regarded as part of the risk transfer solution, but not the only one.
Parametrics, Groenheide said, are “a part of the equation, [but] it’s not the full equation”.
“We view our risk transfer as a symphony, and part of that symphony is alternative risk transfer which parametric plays a large role in,” he said, and added: “It’s not just relying on one tool, but many different tools.”
Hard market driver
One of the reasons for the heightened interest in parametrics is the hardening conditions in the broader commercial insurance market.
“The vast majority of clients today are contemplating the use of parametrics, largely because of the constraints that exist in the market,” said Wright.
At a time when the US insurance market is beset with capacity constraints and carriers are imposing higher attachment points, parametrics provide clients with “opportunities to buy down significantly”, he said.
“A huge number of people are disillusioned at times by the lengthy claims process and so they have interest in looking at ways to improve speed of payment, and obviously parametrics provide that,” Wright added.
The consistency and efficiency offered by parametric coverages, as well as their straightforward claims process, are just some of the key factors that are driving clients towards the use of such protections and away from traditional indemnity products.
“The primary driver in regards to why parametric is so attractive is the ability to have consistency,” said Groenheide.
“If X happens, then Y payment will be received,” he explained.
“We view our risk transfer as a symphony, and part of that symphony is alternative risk transfer which parametric plays a large role in”
Mark Groenheide of GuideOne says parametrics are not a replacement for traditional risk transfer
Parametrics, he said, provide “that consistency [and] that understanding” which allows companies such as his “to derisk our portfolio in a very predictable fashion”.
“It just allows a more efficient reinsurance purchase,” he added.
As previously revealed by this publication, GuideOne is understood to have benefited from a rapid payout on a parametric from specialist MGA New Paradigm was triggered by Hurricane Sally in September.
Maureen Biggin, CEO of Thayer Insurance Group, also serves the asset management team for alternative asset manager Brookfield’s hospitality programme, and her company is an active buyer of parametric solutions.
“We like that [parametrics] pay out immediately without any claims adjusters or any kind of claims process. Once the wind is triggered, the payout is inevitable and we appreciate that,” she said.
And in contrast with the broader property insurance market, Biggin said her company’s parametric premium costs have actually been reducing as the firm’s programme improves.