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Parametric Insurance - Creative Risk Financing

Hurricane Andrew

Unless deep pockets prevail, organizations residing in the 'lower 48' are reticent not to insure against mother nature and her wrath known as the Hurricane.

Actuarial fundamentals dictate that frequency plus severity result in exorbitant rates or treaty exclusions all together for the standard insurer.

Alternate risk financing mechanisms provide non-traditional alternatives in these hard to place realms and one very unusual hybrid of recent has prompted some serious interest among those risks who survived the 2017 caribbean season.

Parametric Insurance pays for claims not related to losses but, ex ante, based on certain parametric triggers. In this case, a parametric hurricane contract would pay should a hurricane reach a certain category on the Saffir-Simpson Scale in a certain region with wind speeds achieving a mimium sustained level over a specific location such as a major metropolitan area that would sustain signficant damage.

Organizations with such exposure may find a cooperative arrangement with other like-kind entities attractive.

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