MANAGING RISK THROUGH PARAMETRIC INSURANCE
R&C: Could you outline the types of risk that parametric insurance is used to cover?
Wilkinson: Mother Nature continues to challenge us with record-breaking extremes of weather, changing seasons, continuing increases in temperature and greater volatility globally. In response, the insurance and wider financial services sector offers increasingly tailored solutions which allow governments, municipalities, corporations and even individuals to manage the financial impact of adverse weather on revenues and costs. There is a wide misconception that traditional insurance policies cover ‘weather’ risks. It is true in a sense, in that the direct physical damage to public, commercial and private sector assets from events, such as hurricanes and floods, can be covered by property damage policies. However, there is typically no financial recovery for the wide area impact of such catastrophic events on communities, transportation networks and commercial organisations, or the long-term loss of attraction of a region. Neither do traditional property damage policies cover the impact of season to season variations in temperature, rainfall or snow on a corporation’s financial performance, yet this cost is often far greater than the cost of reinstating a building following flood or wind damage. Severe droughts or freeze events can have a catastrophic impact on crop yields affecting farmers, aggregators, distributors and the wider supply chain. Low wind, rain or sunshine can reduce the output from renewable energy facilities below levels required to service debt. Periods of unexpected rainfall can delay construction projects, resulting in penalty payments for delays to completion.
Oct-Dec 2018 Issue
Willis Towers Watson
Sompo Global Weather
Aon UK Limited