It’s on the market to develop refined parametric structures: Panellists

It’s up to insurance, reinsurance and ILS market participants to improve the acceptability of parametric insurance structures across the Asia Pacific region, say industry experts at ILS Asia 2020.

Although leveraged more widely in the Indian agricultural sector and the Japanese catastrophe arena, parametric insurance remains a relatively new concept across much of the APAC region.

While risk managers across emerging Asia are warming up to the idea of parametric insurance, a lot of education is still required.

Discussing the acceptance of parametric risk transfer in the Asian marketplace at the virtually held Artemis insurance-linked securities (ILS) Asia 2020 conference, Andre Martin, Head of Innovative Risk Solutions APAC, Swiss Re Corporate Solutions, noted the continuous need to differentiate parametrics from traditional forms of cover.

“When you’re comparing indemnity and parametric insurance, I think one point we always have to keep in mind, is at least we don’t see parametric insurance to be designed to replace traditional, indemnity insurance. We see it more to be complimentary to it, to be side-by-side and really fill the gaps, or really fill that capacity that’s no longer there, instead of replacing,” said Martin.

Fellow panellist Edern Le Roux, Head of ILS and Cat Modelling, Descartes Underwriting, expanded on this point and said that while there’s not too much difference between how U.S. and Asian clients are reacting to parametrics, there’s a real need for a lot of education.

“We always have the question about the comparison between indemnity and parametric insurance and how it will react. Parametric insurance remains a small portion of the overall insurance market, but it is growing faster in my opinion,” said Le Roux. “So, we will never replace indemnity insurance but we can really reduce the protection gap by offering capacity when it’s not available, or to cover things that are just not insured anymore by indemnity insurance.”

In terms of acceptance of parametrics in Asia, Martin reminded the audience that while parametric insurance is popular for large, government-backed agricultural schemes in India, as well as for corporates in Japan, for the rest of corporate Asia, it remains a fairly new concept.

“Although there are a lot of transactions being executed here in APAC, I would still say that in this phase, that the whole area around education, awareness creation and explanation is still very important. When we go out explaining parametric insurance, very often parametric structures get directly compared to indemnity insurance, and that creates a bit of a pitfall,” said Martin.

Adding, “It’s really up to us to, apart from educating the client, probably then also to use data and analytics, use new modelling approaches to also come up with more refined structures. So, also to reduce basis risk and really get that acceptability from the clients that they can really grasp it a bit better.”

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