Swiss Re Corporate Solutions (SRCS), the commercial risk taking entity of global reinsurance firm Swiss Re, has launched a parametric hail insurance product in the United States, citing the growing level of losses experienced from severe thunderstorm risks as driving the need for innovative protection.
Last year, 2019, the United States saw severe thunderstorm and convective weather activity that drove some $20 billion of insurance and reinsurance market losses, with four events causing more than $1 billion of losses each.
In 2020, severe convective storms have also struck the U.S., with hail again a major driver of insurance and reinsurance market losses from this peril and a number of billion dollar loss events having already occurred and industry losses from the severe thunderstorm peril already around $12 billion, according to sources.
In response to the seemingly rising costs associated with hail storms in the U.S., Swiss Re Corporate Solutions has launched HAIL, a parametric insurance solution to cover businesses operating in 11 hail-prone states.
The product will address gaps in traditional insurance coverage, the company notes.
Being parametric in nature, the HAIL product will respond based on data on hail events, rather than after lengthy claims assessments, allowing for faster triggering of cover and payouts.
The company has collaborated with CoreLogic, serving as the hail data provider using a proprietary hail verification model to verify the maximum hail size both at the location and in the surrounding area of an event. CoreLogic hail size metrics will be used to determine whether a parametric policy is triggered, or not.
The product will bring together insured customer location data with a pay-out table that outlines policy amounts for reported hail size at specific location(s) during a hail storm event.
To claim, a customer just needs to suffer hail damage and for the reported hail size data to be above the predefined trigger limits, to trigger a payout to the insured.
“We are excited to bring a parametric HAIL product to market in collaboration with CoreLogic®, a proven leader in the hail verification space,” explained Cole Mayer, Vice President Innovative Risk Solutions. “The speed of pay-out, transparency in claims adjustment, and flexibility in the use of the funds make this a powerful tool to supplement traditional insurance policies or to buy as a standalone product if traditional coverage is less available.”
“Our mission at CoreLogic® is to help people find, buy and protect their properties. We deliver the industry’s most precise hail data solution that quantifies risk and verifies event location and severity from the same source data,” added Steve Brewer, Executive of Insurance & Spatial at CoreLogic®. “With our hail models, Swiss Re Corporate Solutions can confidently structure hail risk transfer solutions to better protect policyholders, slash cycle times and significantly reduce claims adjusting expense following hailstorms.”
The new parametric hail insurance product is currently available in 11 states across the U.S.: Colorado, Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, Oklahoma, South Dakota and Texas.
Parametric risk transfer continues to grow in popularity and use is expanding.
For major providers of parametric protection such as Swiss Re, the growing parametric portfolio could lead to retrocessional reinsurance requirements in years to come.
As parametric risk transfer uptake accelerates there is every chance that in the future a company like Swiss Re could look to the capital markets for retrocession or reinsurance to cover parametric weather and catastrophe risks that it has assumed through its underwriting.
A parametric Matterhorn Re catastrophe bond would be a sign that the risk portfolio has grown to the degree where laying off some of the parametric risk is attractive. We could be some years away from such an event, but if parametric insurance growth continues apace there is every chance we see such a scenario in the not too distant future.
Triggering this product on hail size, rather than another parameter, makes sense in terms of being able to calibrate the coverage to actual damages suffered.
In the current environment of a still largely under pandemic lockdown world, the hail exposure in the United States has grown considerably, particularly for companies such as auto dealers whose car lots are now more full than ever.
In addition, airports and other asset concentration locations have more risk on site than perhaps ever before, making parametric protection against damage from weather phenomena such as hail very attractive at this time.