In this interview with The Insurer TV, Guy Carpenter’s Guillermo Franco, Managing Director and Global Head of Catastrophe Risk Research, discusses proliferation in the parametric market, as more clients seek innovative solutions to their risk exposures.
Parametric policies trigger rapid payouts based on the physical characteristics of an event and can be used toward a broad range of losses. For these reasons, parametric policies may be used effectively as a complement to indemnity insurance to disburse funds in a fast, transparent manner.
“We aim to complement (traditional coverage) and find new solutions to problems that existed that maybe we had given up trying to solve,” Guillermo explained, indicating that parametric insurance is not just an alternative, but a vital addition to the broader risk transfer framework.
Guillermo also noted the importance of a “cat-in-a-grid” approach in parametric design. This method, first deployed in the insurance-linked securities (ILS) market in 2015, uses a grid system to model the impact of catastrophic events on insured assets.
Guillermo indicated that this approach allows for more accurate loss calculations than traditional methods, such as the “cat-in-a-box” structure.
“We’ve tested this, and it equated to improvements in accuracy of about 40-50% in some cases,” he said.
Guillermo Franco, Managing Director and Global Head of Catastrophe Risk Research, discusses proliferation in the parametric market, as more clients seek innovative solutions to their risk exposures.
