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The two main benefits of parametric insurance


February 20, 2019   by Jason Contant


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Speed is one of the main benefits of parametric insurance compared to traditional forms of insurance, with the underwriting process taking just several days to two weeks, speakers from AXA Global Parametrics in France said Tuesday.

Parametrics is index-based insurance, meaning the insurance payout is automatically triggered by a parameter or set of parameters that are tightly correlated to a client’s risks, such as a decrease in revenue or increase in prices. For example, in the wine regions of France, a 25% payout could be triggered if the daily minimum temperature reaches 0°C, a 50% payout at -1°C, a 75% payout at -2°C and full payout at -3°C, when it would be assumed the client would have suffered substantial damage to their crops in just one day.

“It’s quite a revolution in terms of mindset, because you do not rely any more on any loss assessment of physical damages. You get rid of that, in fact,” explained Antoine Denoix, chief executive officer of AXA Global Parametrics, at the Fast Forward LIVE event at AXA XL’s office in downtown Toronto. “You can be very creative in the way you build parametric products.”

In order to create these products, insurers can use reliable weather, third-party and satellite data (the latter of which has seen progress in terms of resolution over the past 20 years). It can be used in a variety of industries – agriculture, food and drink, construction, energy, travel and tourism, for example – and conditions, from frost and hail to wildfires and earthquake, to name a few.

One major benefit is that a pain point of customers – having to wait for payment after a claim – is lessened. The underwriting process for parametric cover can range from as little as three days to up to two weeks for more complex risks, such as those involving hydro power, said Karina Whalley, marketing and development manager with AXA Global Parametrics, during the presentation.

The second main benefit of the cover is that it can fill in current insurance market gaps. For example, it may be difficult to be covered against high or low temperatures in the traditional insurance market as no physical damages have been incurred.

What’s AXA XL’s appetite for parametric insurance in Canada? “We are working our way to make sure we have solutions that we can deploy in the Canadian market that fit with the regulation and accounting rules that apply to all of us in Canada,” said Urs Ulmann, CEO and chief agent at AXA XL Insurance Canada. “It’s not a question of if, but when. I hope it will be very soon to deploy on Canadian paper in the Canadian market.”