A new cyber business interruption insurance solution using parametric triggers related to outages has been launched at Lloyd’s with backing from Tokio Marine Kiln (TMK) and other members of Lloyd’s Product Innovation Facility including reinsurance firm RenaissanceRe.
The parametric risk transfer product is designed to provide business interruption coverage to small and medium sized enterprises (SMEs), as a form of insurance to protect them against IT disruption or downtime.
Parametrix Insurance, as it is called, will utilise parametric triggers top provide the coverage, meaning that the insurance can automatically pay out if a customer’s critical IT services – such as cloud, e-commerce or payment systems – are disrupted, Lloyd’s explained.
Lloyd’s called the coverage a first of its kind, however there have been parametric risk transfer deals covering cloud outages before. But this could be the first offering an automated payout as the other cyber parametric deals we’ve seen have required a third-party reporting agency, so payouts are still rapid but with a slight lag.
Tokio Marine Kiln (TMK) is leading the capacity for the cyber parametric insurance, alongside RenaissanceRe and other members of Lloyd’s Product Innovation Facility.
Lloyd’s noted that this is the first off-the-shelf parametric IT downtime policy tailored towards SMEs.
Technology-led approaches to insurance enable much better outcomes for customers and when it comes to potential IT related issues, such as cloud provider outages, or e-commerce payment gateway outages, the costs to SME’s can be considerable, making contingent forms of insurance and reinsurance capital delivered by parametric means a very attractive option.
Key is pricing for these risks, given the lack of experience the market has in rating them typically.
But with data on cyber outages abundant and available to analyse, while parametric triggers make the outcome more predictable and translatable into metrics associated with probability of loss, clearly Lloyd’s insurance and reinsurance carriers are getting more comfortable with putting up capital to back these types of risk.
Yonatan Hatzor, Co-founder and CEO of Parametrix Insurance, explained, “Businesses have shifted to managing most of their critical IT operations by using third-party service providers, thereby increasing their vulnerability to disruption. As a result, critical technology downtime has become the fastest growing risk for businesses today, whether you are a technology company or not. On top of this, the existing claims process in the field is complicated, expensive and time consuming.
“Parametrix’s approach addresses all these issues, providing a solution that saves both time and money, while making tech insurance accessible to new business segments. We are thrilled to launch the first ‘off-the-shelf’ parametric insurance product for IT downtime. This is a great milestone for us and we are grateful to TMK, Howden and Lloyd’s Product Innovation Facility for helping us to develop our product and providing us with valuable insights and support along the way.”
Trevor Maynard, Lloyd’s Head of Innovation, added, “We know that insurance products and services have to evolve to respond to the challenges of the COVID-19 pandemic and help our customers cover new or heightened risks that they may encounter now or in the future. That is why Lloyd’s Product Innovation Facility and our new Lloyd’s Lab cohort are both looking at ways the industry can do this more effectively. I am delighted to see evidence of this today with the launch of Parametrix.”
Tom Hoad, Head of Innovation at Tokio Marine Kiln and Chair of the Product Innovation Facility, also said,“Third party cloud service providers help our clients trade within an ever-changing world and Parametrix have done a great job in developing an insurance product that helps build resilience in this space. We hope that the PIF BETA (comprising TMK, RenaissanceRe and others), which is supporting Parametrix Insurance with underwriting capacity, continues to be an effective accelerator for other technology-driven product solutions.”
David Rees, Cyber broker at Howden commented, “It is very exciting to work with the Lloyd’s Product Innovation Facility and the PIF BETA led by Tokio Marine Kiln on this ground-breaking project, which combines the best of Lloyd’s product innovation and capacity, as well as working with our market leading cyber capability in Howden Israel led by Shay Simkin.”