Swiss Re to Work with HWind Scientific to Develop Parametric Insurance Policies

According to the insurance industry website Artemis, Swiss Re recently announced that it would be working with HWind Scientific to create a new set of parametric insurance and reinsurance products based on analysis of data from U.S.-based hurricanes and tropical storms captured by HWind. The new products are designed to speed up the process of paying out claims.

Zurich, Switzerland-based Swiss Re, Ltd. provides a wide variety of insurance and reinsurance products around the world directly, or through brokers.

HWind Scientific, LLC is a Tallahassee, Florida-based company that collects data about wind patterns, especially in storms, to determine how the storm is likely to behave. It was started by Dr. Mark Powell, who used to work for the NOAA. His experience at that agency allowed him to develop accurate wind data to map a hurricane’s wind field while it is active.

This is critical to setting up parametric insurance policies. Such policies will pay out when certain parametric triggers are met. The amount of these payouts is determined by a number of factors like the intensity level of a disaster, the area’s susceptibility to disasters and exposure to risk. When certain conditions or triggers are met as a result of the disaster, the policies pay out.

This works differently from an indemnity model where the insured is paid the actual amount of the loss. Indemnity policies, although they pay the actual losses from a disaster, often take a long time to pay out, because it often takes a long time to assess how much damage actually occurred.

Parametric policies require no such evaluation; they pay out based on pre-determined conditions without regard to the amount of damage. Although this results in faster payouts, the biggest disadvantage of a parametric policy is that the insured may be paid less than their actual losses. This is also known as basis risk. Due to their relative simplicity, parametric policies cost the insurers less in terms of overhead.

Swiss Re and HWind Scientific have teamed up to develop insurance products that cover damage from rare, but devastating events. With the parametric model, the insured may not be paid for their actual losses, but will be paid faster. That’s probably a better tradeoff to someone who has suffered a total loss and needs to get back on their feet as soon as possible.