Awareness driving increased parametric adoption by corporations: Ferma panel

Corporate insurance buyers across Europe are increasingly turning to parametric solutions as risk managers’ understanding of the type of solutions available continues to grow, according to a panel hosted by The Insurer TV at the Ferma Forum in Madrid.

“We are having more and more inquiries,” said Rocío Pereira Férnandez, alternative risk transfer and parametric leader EMEA at Marsh, explaining that parametric insurance appeals to many corporations.

“The education has improved a lot in the market, and that’s driven a lot by the brokers investing in this space… who can educate and advise the customer,” said Akshay Gupta, head of parametric solutions at Berkshire Hathaway Specialty Insurance.

“I think the second reason that we are seeing is that people are just getting more aware of the gaps in their traditional coverage,” Gupta added, discussing how corporations are retaining significant risks through deductibles, sublimits and exclusions, particularly for business interruption (BI) and contingent BI.

“The flexibility in the claims process, the fast payout that they have and the transparent and simple processes are really very valuable for our clients,” said Pereira Férnandez, referencing a claim from Hurricane Helene paid within days.

Parametric covers are widely used for tropical cyclone and earthquake risks, particularly by corporations with exposures in North America and the Caribbean.

Some organisations are also using parametric solutions for power outage, flood, hail and wildfire risks in Europe, Pereira Férnandez said.

Parametric covers “should not be seen as replacing indemnity,” said Gupta.

“All the losses that can take place due to an event that are not covered explicitly [by other insurance], or the quick infusion of capital that you need when an event happens, that’s what this product is trying to cover.”

“Certainly the hard conditions on the traditional market have helped the promotion and the use of parametrics, but I don't think that this is something that is going to go away, just because the market conditions go down,” said Pereira Férnandez.

“I think that the benefits that parametrics bring to corporations are so good that they are going to stay.”

Gupta agreed, adding that parametric solutions have become “an integral part” of some corporations’ risk management strategies.

Watch the 12-minute panel discussion for more insights on why risk managers are adopting parametric insurance and how it can be used to complement traditional insurance.