A Florida based managing general agency is making headway with a parametric insurance solution that narrows the gaps in traditional property insurance policies. The “first dollar” parametric hurricane cover offered by New Paradigm Underwriters is also partially backed by the ILS market.
New Paradigm Underwriters launched in 2014, with a goal of bringing new insurance product technology, alongside efficient reinsurance and risk capital to Florida in order to offer a product that filled a gap in existing property coverages.
Founded by Evan Glassman, President and CEO of New Paradigm Underwriters, a former Florida insurance agent and entrepreneur, alongside Bradley Meier, New Paradigm Chairman, who previously founded Universal Insurance Holdings, the company launched and has been marketing its Hurricane PM product.
“There’s a tremendous disconnect between the true economic needs of recovery for property owners, public entities and businesses versus the protection typically provided to them under traditional insurance policies,” Glassman explained. “Hurricane PM is now available to complement the traditional, indemnity-based coverages available in the insurance market to enable a more complete solution to the losses caused by hurricanes.”
Hurricane PM is a parametric catastrophe risk transfer product, designed to protect property and businesses from hurricane damage. New Paradigm identified where the gaps were in traditional property coverage and market their parametric solution as a supplemental cover, providing “affordable first dollar protection” as well as “rapid claims payment.”
Being a parametric insurance product, Hurricane PM is triggered by actual named storm wind speed, with payouts based on a storm or hurricane “meeting or exceeding a pre-determined sustained wind speed in specific pre-determined locations.”
In order to provide the robust trigger required for a parametric solution in the U.S.’s most hurricane exposed state, New Paradigm partnered with the risk modelling firm RMS and the weather measurement provider Weatherflow Inc., to gain access to measuring stations and to create a rapid claims calculation process for the trigger.
Weatherflow has a network of almost 100 hurricane-hardened wind monitoring stations located around the U.S. coastline, from Texas to the U.S. Northeast. The network’s anemometers register the maximum sustained wind speed during a named storm or hurricane. This data is then collected and certified by RMS, enabling payouts to be made extremely quickly.
“We are delighted to be partnering with New Paradigm to provide the models and risk insights needed to grow this market” commented Hemant Shah, co-founder and CEO, RMS. “Innovative solutions that help the market expand coverage are a top priority for us at RMS.”
Buck Lyons, CEO of Weatherflow, added; “Weatherflow has committed our substantial experience and technical expertise, along with a large financial investment, toward reliably and accurately measuring the force of hurricanes at landfall. We are incredibly pleased to now see our technical capabilities used in New Paradigm’s innovative effort to reduce financial risk for property owners and businesses.”
The New Paradigm model has embraced the insurance-linked securities (ILS) market from the start, with a relationship with ILS asset manager Nephila Capital providing some of the ultimate capacity backing the product, fronted via Allianz Risk Transfer. Capacity for the Hurricane PM product comes via Allianz, with Nephila one of the providers of risk capital behind the insurer.
Being a parametric risk, providing capacity to support the growth of New Paradigm is aligned with the goals of many ILS markets, making its product an attractive place to deploy capital. Also New Paradigm is creating additional insurance demand, by providing a product that is supplemental in nature, hence generating new requirements for Florida peak risk capacity.
Hurricane PM can provide coverage for losses that sit below the traditional insurance policy deductible, hence the “fist dollar” approach. This is important for many commercial insurance buyers who do not want to retain as much of the risk, or who would like to have rapid access to cash flow should a storm strike.
Being a parametric product, the Hurricane PM solution can also provide a business interruption cover, including for lost profits due to business down time in the run up to, or after, a major storm. Parametric insurance products can provide cash flow at just the right time to enable a business to come out of a hurricane situation with a more healthy balance sheet.
The product can also cover items that are traditionally excluded by the normal property insurance policies, such as landscaping, seawalls and other outdoor property that it would be preferable to be able to make a claim for.
The potential client base for this type of parametric insurance product is huge, with New Paradigm targeting business and industries such as condominium or homeowner associations, resorts and hotels, golf courses and country clubs, hospitality industry, commercial real estate, power and utilities, energy, healthcare, hospitals and assisted living, gaming, municipalities and infrastructure, transportation, schools, colleges and universities.
New Paradigm plans to launch other products, which will also be parametric in nature, with flood one avenue that it is exploring. The firm will also aim to offer parametric capacity on a reinsurance basis, as well as its primary insurance product range.
By bringing insurance and reinsurance capacity to areas of the insurance protection tower which are not traditionally covered, New Paradigm is creating additional demand in what have long been considered saturated markets.
The use of parametric triggers, alongside the technology provided by Weatherflow and RMS, enables this, creating opportunities for capacity providers to work alongside New Paradigm to provide risk capital to back catastrophic risk exposure.
As a result, the risks that New Paradigm is selling protection for are particularly attractive to insurance-linked securities (ILS) fund managers and the capital markets, as well as to traditional reinsurance capacity providers. It’s no surprise that Nephila Capital have been one of the providers of risk capital to back this venture from the start.
Combining risk measurement technology, with parametric trigger design, efficient risk capital and (perhaps most importantly) a team that understands how to sell innovative products to primary insurance buyers, is key to the success of New Paradigm Underwriters and bringing new insurance options to risk managers and buyers in Florida and further afield in the U.S.