Parametric insurance: With the right partner, there’s always an answer
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Have you ever heard of a retailer taking out insurance against poor sales revenue? At first glance, it’s not the sort of risk you would normally consider insurable. However, if you dig deeper it’s not as fanciful as it may seem.
The risk manager of a European luxury goods company was concerned about how an earthquake could impact sales at the company’s flagship store in Tokyo. He contacted Swiss Re Corporate Solutions to inquire about protection against such an event.
As this was an unusual request, it required an innovative solution. We had to engage in extensive modelling to map out the client’s normal sales patterns and assess the impact of an earthquake on retail activity in the area. By doing so, we were able to create an effective solution centred on the client’s need to ensure business continuity following an earthquake.
We devised a multi-year policy offering predefined payouts based on the level of an earthquake shake intensity index. This solution complements the client’s previous cover, as it depends solely on whether an earthquake occurs. On the other hand, more traditional products, such as property damage or business interruption, are based on business-specific criteria which may or may not be triggered by an earthquake.
The parametric cover is also relatively straightforward, if there is an earthquake there will be a payout related to the quake’s intensity. This negates the need for the time-consuming claim reporting and handling process, thus resulting in relatively fast payment (usually within six weeks). In the aftermath of a major natural catastrophe, that will provide crucial support to the client’s operations.
There are many ways to apply parametric insurance as a means of protecting your company against high-impact scenarios. At Swiss Re Corporate Solutions, we have the expertise to turn the potential of parametric cover into an innovative insurance product based on the client’s specific situation.