Parametric California quake BI insurance developed by Swiss Re

Global reinsurance firm Swiss Re has partnered with program manager Arrowhead and insurance partner Falls Lake to launch an innovative parametric California earthquake business interruption insurance product for commercial clients.

Swiss Re has developed the proprietary risk model for the earthquake business interruption insurance product named Quake Assist.

Working with primary insurance partner Falls Lake, a James River company, reinsurance firm Swiss Re’s model defines the parameters necessary for claims payments, with coverage available to commercial insurance buyers in California.

The Quake Assist product will be sold and marketed by Arrowhead General Insurance Agency, with the insurance paper and capacity coming from Falls Lake.

The Quake Assist product, through its use of parametric triggers, is designed to expedite and simplify the payment of claims for businesses affected by earthquakes in California.

Small and medium-sized businesses are the first to be targeted with this product, but we understand it is thought suitable for much larger buyers as well.

Smaller commercial insurance policies often require property damage to be proven and assessed before business interruption coverage kicks in. But it’s often the case that businesses that suffer no specific property damage may still have to shut down after an earthquake strikes, due to power outages, supplier issues, employees not being able to get to work, and other factors.

The Quake Assist product offers a way for coverage to be attained for these interruption related issues, with swift claims payments due to the parametric triggers that remove the need for claims assessors to be deployed.

Coverage payments are triggered automatically once pre-defined parameters related to an earthquake are met.

Payments are based on the earthquake’s magnitude, 4 or greater, as well as the distance the insured’s location is from the epicenter. Claims can be paid instantly once these conditions are met, lowering the uncertainty of financial losses, paying expenses and covering loss of income, as well as helping businesses to continued trading and operating.

Swiss Re said that the Quake Assist product is also a way that primary insurers can add a new source of profitable growth, by covering previously uninsured risks, helping existing commercial customers by providing a new coverage option, as well as growing their customer base in emerging markets.

For the reinsurance firm it is also a way to provide its own capacity to help back the sale of parametric products such as Quake Assist, hence developing these products also helps Swiss Re get its own capacity closer to the ultimate commercial insurance customer.

For Arrowhead this is a new product it can market to its existing client base, providing a valuable additional coverage option that may not have been available to them previously.

“What makes this product unique is the fact that the insured’s property doesn’t need to have experienced any damage, for this business interruption coverage to take effect. It’s triggered when a business is closed due to an earthquake,” commented Steve Bouker, executive vice president of Arrowhead. “Other commercial earthquake policies require property damage to have occurred before business insurance coverage kicks in.

“Earthquakes are inevitable in California, and Quake Assist helps protect the financial security and viability of small businesses. It helps reduce the uncertainty of financial losses by maintaining daily cash flow and allows owners to more effectively budget and manage their business.

“Even though they may be closed and losing income, business owners still have ongoing expenses such as payroll and rent. This program provides peace of mind to business owners, knowing they’re covered.”