What is a parametric solution?
- Parametric insurance programmes respond to movements in an index or the occurrence of a pre-agreed event, such as extreme weather
- Claims are triggered if:
- The actual measurement of the index during the contract period moves above (or below) an agreed index point, or
- The physical characteristics of the event meet pre-agreed criteria (e.g. intensity and location)
- The claim amount is calculated according to a pre-agreed scale of payment, not by reference to actual loss, damage or concept of indemnity
- Claims are paid quickly after the occurrence of the policy trigger
- There is no restriction on the use of claims payments
Why a parametric solution?
- Transfer of non-damage business interruption risk
- Protect revenues
- Mitigate costs
- Transparency and clarity of coverage
- Minimal proof of loss requirements
- Speed of claims settlement
- No local infrastructure required for loss adjustment
- Limited client specific underwriting information requirements
- Source additional capacity
- Flexibility in design of solution
- Recognition of potential climate change effects
Weather exposure by industry
In recent years the global climate has become increasingly volatile and unpredictable, as evidenced by unusual and unseasonable weather.
For many organisations, weather affects the volume of sales and/or costs and expenses, creating volatility of profits and financial results.
In some sectors, such as energy, there is a very clear relationship between the volume of sales and the weather. In fact, statistically, the correlation between the sales of gas and aggregate measures of temperature may exceed 90%.
But this clear correlation between weather and revenues is not just limited to energy companies. The table below shows some of the better-known effects of adverse weather within certain industry sectors. There are many others.
| Industry | Weather exposure |
|---|---|
| Real Estate | Severe winters increase energy bills, maintenance and snow removal costs |
| Construction | Excessive rain, wind or snow delays projects resulting in liquidated damages |
| Food and Agriculture | Drought, frost or extreme heat damages crops or reduces yields |
| Leisure and Hospitality | Excessive rain, cold, or snow forces cancellation or reduces attendance |
| Natural Resources | Excessive rain causes shut down of mines |
| Power Utilities | Warm winters reduce energy demand |
| Public Authorities | Severe winters increase snow removal and road gritting costs |
| Renewable Energy | Lack of consistent wind, water or solar energy reduces power generation and thus revenue |
| Retail | Excessive rain or snow reduces footfall and unseasonal weather reduces demand for seasonally sensitive ranges |
| Transport and Logistics | Excess snow or extreme cold causes flight delays and cancellations |
| Water Utilities | Low rainfall results in water shortages 'Freeze-thaw' events can lead to massive disruption and costs |
Our services include the following:
- General weather risk advice and market information
- Evaluating business – specific weather exposures
- Data procurement
- Actuarial analysis of weather data and weather dependencies
- Design of bespoke solutions
- Pricing analysis
- Sourcing capacity across all market sectors and price negotiation
- Execution of solutions
Our key added value
A team of experts
This is the only global team in the market that focuses exclusively on alternative risks and innovative methods of transfer.
Tailor made solutions
Development of innovative and tailor-made solutions adapted to your exposure and your budget.
Independence
We are completely independent of any risk capacity and can therefore provide objective advice on the choice of risk partner.
Saving
We help protect your profit and loss account and balance sheet
The parametric solution is one of six main pillars of our Alternative Risk Transfer (ART) solutions.
- Captive Solutions: Loss portfolio transfers, multi-line stop-loss solutions and 'fronting' for non-traditional risks.
- Portfolio Solutions: Multi-line, multi-year solutions to provide efficiency and cost savings.
- Structured Insurance: Solutions to manage the cash flow, P&L and the balance sheet impact of low frequency, high severity losses.
- Parametric Solutions: Index-based programmes which respond to defined (usually weather) events occurring.
- Customised Credit & Collateral: Credit enhancement to guarantee solvency, and deliver capital arbitrage.
- Asset & Capital: Catastrophe bonds, contingent capital and residual value insurance.
