Descartes Underwriting's Vetter: Parametric Insurance Often Supplements Traditional Cover
Parametric insurance often supplements traditional insurance, but can also replace it, said Daniel Vetter, head of Americas, Descartes Underwriting.
Descartes is a fairly new company. Can you tell us how long you've been in business and when you came to the US?
The current underwriting has been around for about three and a half years. We're based in Paris, France, and have come to the US just about a year and a half ago. We're a managing general underwriter, exclusively focused on parametric risk space. And within that we focus on climate and weather perils.
What kind of risks do you underwrite?
We are actually not focused on occupancy as traditional underwriters would do, we are focusing on climate perils. So think of us as an organization that help corporate clients when it comes to earthquake insurance, hurricane, all the way over to tornado, hail and wildfire and anything in between, like drought, for example, excess precipitation. So anything that mother nature throws at us from a weather perspective, we potentially or we will likely have a solution for that.
How is parametric insurance different from traditional insurance?
That's probably the key question that we're trying to address here today and at the conference. So parametric risk insurance, or as it is sometimes also referred to as index-based insurance is different from the standpoint that we underwrite the probability of a climate or weather event to happen or not. So in that sense, we have less of a concern about the actual physical consequence that an event has on a structure or an asset. So this is our underwriting focus.
Whereas the traditional property underwriter focuses on the risk characteristics of a location and assets, we look at the probability of a climate event to happen or not.
And if an event happens, how do you respond?
The cover is based on an index that we're creating around a natural peril. So let's take earthquake, for example, the index will be based on shake intensity. For example, if the earth shakes at a magnitude of 6.0 or higher the cover starts to trigger. If it's exceed 6.5, for example, more of the cover gets triggered all the way up to maybe for example, a 7.0 would trigger 100% of the cover.
We are not focused on what the earthquake the impact it has, on the physical structure, we focus solely on the shake intensity of the earthquake.
Does there have to be physical damage for the policy to be triggered?
There has to be economic damage to for the policy to be triggered. So our policies or a parametric risk policy, in general, contains a proof of loss stipulation, which we require from the insured, where it basically will require an insurer to say I have suffered economic loss from event XYZ.
The upside with a parametric risk product is we do not have a claim settlement process in the traditional sense. So the event happens the cover gets triggered, the payment follows typically within seven to 14 days post event.
Whereas of course, on the traditional in the traditional insurance, you have at times lengthy claim settlement process that will follow can take weeks can take months, sometimes it takes years. And so what our product does is fundamentally different when it comes to the claims proceeds, and we oftentimes advertise our product as we're selling liquidity
Do companies traditionally buy the parametric cover in addition to a traditional policy?
Typically they do, yes, certainly a parametric risk product can replace traditional insurance. But oftentimes what brokers and clients are looking for is to complement a traditional insurance product, which maybe a deductible has been increased, a self-insured retention is being driven up, maybe capacity has been taken out of the market by traditional underwriters. So often more than not, it's a compliment, but it can be a supplement or a replacement as well.
Whose paper do you write on?
We are writing on Generali’s excess and surplus lines paper out of London. So from a security standpoint, certainly or from a rating perspective, no questions there. And we've been very fortunate with Generali as our risk partner in as much as they rely exclusively on our underwriting capabilities when it comes to parametric risk policies.