Parametric possibilities Could cover based around agreed sums and risk levels be a simpler option for catastrophe-prone northern Australia, and beyond? By John Deex
Protecting assets: Mirage Country Club Port Douglas arranged parametric cyclone cover through Epsilon
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arametric insurance has been around for decades, but it’s still a new concept to many customers in Australia. Yet it could be an attractive alternative in under-pressure geographical regions. So what is parametric insurance? It’s startlingly simple – paying out an agreed sum in the event of a specific and measurable weather trigger. It means cover can be carefully tailored to match an insured’s risk appetite, exclusions are less of a concern and claims can be paid out quickly and efficiently as there’s no need for a detailed assessment of the loss. Australian underwriting agency Epsilon – part of the UK-based Ardonagh empire – has started offering Lloyd’s underwritten parametric cover to north Queensland businesses, and there has been significant interest. Epsilon believes this is just the beginning, with parametric cover particularly suited to Australia’s weather extremes and applicable to a wide variety of industries across the country. Chief Underwriting Officer Paul O’Leary tells Insurance News the spark for the offering was the increasing insurance challenges faced by north Queensland strata properties due to tropical cyclone exposure. “They were having to revert to going into the London open market to find solutions,” he says. “As anyone knows, as soon as business is shown in
August/September 2021
the London open market it is immediately considered distressed business. And being distressed business, it gets treated that way – the premiums are significantly high and the deductibles are very high. “It’s not the best solution.” The catalyst for Epsilon to look more deeply into the parametric option came when a broker told the agency that traditional markets moving away from north Queensland business had “created a void”, and it had been able to engage MeteoProtect, a division of European brokerage Cooper Gay, which is now also owned by Ardonagh. Paris-based company MeteoProtect specialises in parametric cover and had previously enquired about opportunities in Australia. “When this broker approached us it gave us a great opportunity to test how that would work,” Mr O’Leary says. “Our first foray was into parametric insurance around tropical cyclone and for strata-style businesses. “We’ve now written several of these and we’re almost getting daily inquiries, and it’s expanded beyond strata business to clubs, hotels and pubs and the like.” Mr O’Leary accepts that parametric cover isn’t a silver bullet to solve the region’s affordability issues. While it’s not cheap insurance, it is generally cheaper than traditional options and provides much more flexibility. “It allows clients to decide where they feel their risk exposures are and manage those risk exposures, and
