INTERVIEW: COLE MAYER, AON
Parametric toolkit set to grow as new investors move in
Parametrics’ ability to solve specific problems for clients in a different way than traditional re/insurance, combined with investor appetite to deploy risk capital behind these covers, means the parametric market is tipped for rapid growth.
An already bullish parametric risk market is tipped for even more accelerated growth as investors better understand its potential and carriers increasingly grasp its advantages and ability to solve specific problems for clients—but in a different way than traditional re/insurance, Cole Mayer, head of parametric, Aon, told Monte Carlo Today.
“These tools can help to alleviate market challenges and solve problems in a very different way by paying very quickly and providing maximum flexibility in the use of the funds; for this reason, parametric dovetails quite well with traditional insurance and reinsurance and is increasingly seen as an additional tool in the toolbox.
“That is why I am so excited to help Aon lead the parametric charge—this is an important area and Aon is uniquely positioned to be a global leader in this growing and important space,” he says.
Mayer joined Aon from Swiss Re in June, where he held a number of senior underwriting roles. In his new role, he will manage a global centre of excellence for parametric products, coordinating their structuring and distribution across Aon’s solution lines and regions.
As he notes, parametric products are growing in popularity, mainly due to their ability to fill coverage gaps and provide organisations with a risk transfer option better aligned to the specific requirements of their operations. Parametric payouts are typically based on certified and measurable indices, and deals pay out automatically when pre-agreed triggers are hit.
“My role is to coordinate our global efforts around parametric, to ultimately bring all of Aon’s capabilities to our clients and to drive both efficiency in execution and first class innovation in this area,” he says.
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“Parametric re/insurance will become a key tool in the risk management toolbox.”
Cole Mayer, Aon
Innovation rules
The growth in the space is partly powered by innovation, which Mayer splits into two categories. The first is around peak perils in the nat cat space. While these were one of the original frontiers of parametric deals, he says there has been further innovation.
“The increase in the quality and granularity of data around these perils has meant that those covers can be structured much more granularly for our clients, to get closer to their ultimate risk.”
The second form of innovation is around what Mayer calls today’s frontier risks—new perils where the market is seeking solutions. He names wildfire in this category, and cyber. “There is some pretty significant innovation happening in both of these areas.”
He says one example of the first form of innovation is the government of Puerto Rico, which has entered into a parametric arrangement that covers hurricane and earthquake risk. He said such deals can serve governments well after a disaster.
“In the US and globally, governments have all kinds of loss and expenses that arise post-event that are traditionally not very easily insured. They are expected to respond quickly and need rapid liquidity and flexibility in the use of those funds. Parametric covers can address both of those needs, helping these entities respond quickly to these events and help their constituents recover,” Mayer explains.
“We expect the parametric sector to grow substantially—Aon will bring all its capabilities across solutions lines and regions to bear for our clients.”
The market’s growth is being accelerated by enhanced interest for investors in the space. He says these come in three forms: insurance-linked securities (ILS) investors, which have been a supporter of parametric structures dating back to the 1990s; traditional insurers and reinsurers, which are increasingly interested in deploying capital in this space; and private equity funds.
He says this third type of investor is especially interesting. Some are working with managing general underwriters or managing general agents to enter the market, others with insurers or the ILS sphere.
“Those are the three main capital sources we’re seeing and it’s facilitating significant increases in available capacity across the spectrum, pushing innovation in the space. There are very real reasons why parametric is quite attractive to capital providers, who see it as a different, and sometimes more attractive, way to take nat cat risk. I think that interest will continue to increase,” he says.
Mayer is bullish on the market’s potential. “We firmly believe that parametric re/insurance will become a key tool in the risk management toolbox of almost every public entity, corporate and re/insurance company. It can solve very different problems than traditional re/insurance, making it a natural complement to traditional cover.
“We expect the parametric sector to grow substantially—Aon will all its capabilities across solution lines and regions to bear for our clients; we’re focused on ultimately growing that market, and offering parametric solutions to help build resilience and shape better business decisions. The demand is increasing substantially in this space and the corresponding supply will need to keep up with that,” he concludes.
Cole Mayer is head of parametric at Aon. He can be contacted at: cole.mayer@aon.com
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