Parametric insurance and mitigation-based credit – the future of CAT
A primary hazard is low frequency and high impact, such as hurricanes or earthquakes. Secondary perils are common and individual losses are not as high, but overall losses are more noticeable.
According to Forde, hail accounts for a significant portion of secondary peril losses, while being an incredibly difficult peril to insure as it is expensive to send professionals to assess hail damage.
“Industry is responding to increased demand [for CAT protection] by introducing new ways of doing business such as parametric insurance,” Forde added.
Traditionally, a premium is paid and, in the event of a claim, the insurance company is contacted and someone is sent to assess the costs of losses and repairs. Meanwhile, parametric insurance is a contract between the insurer and the insured, where a sum will be paid instantly for a specific amount of damage.
Read more: Parametric insurance: the cat nat coverage you need
“An easy peril to consider this insurance for is flooding,” Forde said. “There is no need to send someone to assess the damage as the insurer pays the agreed parameter for that particular peril.”
Wildfires have also become a growing concern, and the industry is developing more initiatives to encourage resilience, such as mitigation-based credit.
New incentives give insurance companies and policyholders confidence in the coverage in place, and they encourage proactive behavior to reduce losses.
Forde mentioned that wildfires are growing in importance and approaching the primary peril category.
“We look at a risk score, a probabilistic model score, and forensic services to understand the impact of an event, such as a wildfire, without actually going to the scene,” he said. declared. “Primary and secondary risks are also very important between different insurers, there is wide acceptance of how you can segment them.
“From year to year, we gain more experience in understanding these events. As technology improves, predictive models also evolve. As a result, all of this helps insurance companies provide more cost-effective coverage, which is key moving forward. »
Read next: Predictive analysis and the evolving nature of risk
In 2022, there will be big changes in terms of implementing strategies to help protect P&C clients. “Mitigation-based credit insurance and parametric insurance show how inventive the industry can be, and we expect to see more of it,” Forde said.
Catastrophe models will continue to be improved and they will refine the assessment of fiscal risks, transition risk and ESG requirements.
“These factors are of great importance because CAT models work to simulate what may happen in any given year,” Forde said. “Scientists are looking at a range of different criteria and insurers will need more transparency to fully understand potential risks.”