Aon’s global head of weather risk Kurt Cripps suggested satellite data and clicks to sales are being increasingly used
Parametric re/insurance is turning towards non-damage business interruption (NDBI) covers, in addition to its existing foothold in weather risk transfer, according to Aon’s global head of weather risk, Kurt Cripps.
Satellite data or online clicks to sales are just some of the tools that can be used, he suggested. Recent transactions have included construction, agriculture and real estate industry deals.
“Weather risk is an increased concern, because while there is plenty of data, weather patterns are changing and we’re seeing more extreme weather. However, I think NDBI will take over what we do,” Cripps told GR.
Cripps noted a recent NDBI deal for the hotels sector, which used the Smiths Travel Research Index to monitor revenue per available hotel room.
“That deal involved two triggers: if revenues dropped 20% below the monthly index; and if client cannot service its debts,” said Cripps.
Cripps has been working on primary and reinsurance market parametric transactions, a symptom of changing flows of capital in the risk transfer sector.
“We brainstorm with clients and aim to be entrepreneurial. I’m ambivalent on capital. One day it can be insurance, another day reinsurance, or hedge fund or ILS capital,” he said.
“We’ll sit down with clients and discuss what we might do, and if you can’t do something on a traditional insurance industry basis, think about using an index,” said Cripps.
Chief financial officers in particular are keen to reduce earnings volatility. “It’s a question of whether to hedge off volatility or keep it on the balance sheet,” said Cripps.
Some clients are using parametric covers to supplement existing re/insurance, he explained. Using an independent data-set agreed to in advance also cuts costs and litigation risk.
“Parametric is attractive because of the speed at which it can provide immediate cash post event. That attractiveness is also about reducing the cost of doing business, particularly if you’re spending 40 cents in every dollar on lawyers, brokers and any other fees.”