The simple, binary structure of the product enables capital providers to confirm pay-outs faster than traditional (re)insurance products.
Parametric (Re)insurance is an indexed based product that offers recoveries based upon pre-defined trigger events (peril, location and severity). At McGill and Partners, we structure each contract on a bespoke basis to reflect the needs of our clients – we look to understand and mitigate the inherent basis risk in these products and believe they offer an attractive and complimentary alternative option to our clients.
Parametric products are a powerful mechanism when fast and efficient recovery is needed or is preferable – the speed of pay out can mitigate or reduce loss development thereby having a positive effect for the insured.
Capacity for structured products is flexible – meaningful limits are available to address the larger capacity challenges of our clients but also as the structuring costs are not onerous it can also be used to efficiently address smaller challenges.
The binary process, which provides clarity on loss and speed of payment, is very attractive to both insureds and cedents – certainty of position is attractive to both buyer and seller.
The parametric product creates certainty for the client and eliminates questions on whether certain assets or underlying coverages are within scope, something very topical during covid. Parametrics can often be structured and placed with minimal information and therefore underlying assets are not questioned.
For example, if a retail client suffered no Property Damage in an earthquake but suffered a Business Interruption loss due to closure of stores, the client could receive a pay-out if the severity of the earthquake was triggered.
We are currently working with clients on products that would recover in another Pandemic or suffer losses from ongoing global uncertainty.
In 2021, there were number of events including Winter Storm Uri, the European Floods and finally Hurricane Ida, which triggered more interest from clients, who sought more index-based products for Catastrophe perils. Technology Platforms and MGAs are focussed on live, as well as historical information, which is generating more robust data and enabling McGill and Partneto create more bespoke and effective structures to recommend to our clients.
New capital is also seeking more ways to get closer to the original risks and the product takes it either onto the Insurance programme or one step back via Reinsurance. Certain capital is seeking ESG focused products and as these programmes are aggregated and tailored to class and territory, the product can be tailored to the non-traditional carriers.
McGill and Partners has established a core working group, encompassing colleagues from a multi-class background from our Insurance, Reinsurance and Capital Market teams. We have been working with both Insureds and Reinsureds, either securing single peril coverages on Insurance programmes, or designing bespoke Parametric coverage across Cedent portfolios.
McGill and Partners are perfectly positioned to advise on this product, as the firm works across a single P&L, providing access to clients and capacity across all teams. It enables a unique perspective on structuring, with full support from our Catastrophe and Actuarial modelling teams.