NEWS
Descartes eyes parametric opportunities
There has been a big growth in the adoption of parametric insurance in Asia-Pacific.
In recent years, the nat cat insurance market has been under strain, with a notable dip in capacity. This has presented significant challenges, especially for those burdened with distressed, loss-affected, or sizeable risks, to secure adequate coverage. Robert Drysdale of Descartes Underwriting thinks this could be a window of opportunity for the parametric market.
“Where traditional insurance has fallen short, the parametric market can fill that void,” Drysdale believes. Speaking to SIRC Today, he suggested that parametric insurance can be a great a solution to bring fresh capacity in markets that are under intense pressure, such as cyber and political violence.
He emphasised that it could fill coverage gaps in areas and infrastructure vulnerable to natural disasters, such as “transmission lines, near-shore/offshore construction projects, and renewable energy facilities”.
“There are a number of coverage gaps when it comes to natural catastrophe and secondary perils in the insurance market, especially in Asia-Pacific where the exposure is quite significant,” Drysdale, who head Southeast Asia at Descartes, observed.
Using renewable energy as a case in point, he commented: “It’s a niche area and the structures themselves are quite vulnerable. Sometimes there is a lack of capacity in the traditional market for natural catastrophe perils, which is where we can bring much-needed additional capacity.”
“Hospitality is another sector where again the traditional market has quite limited appetite.”
Robert Drysdale, Descartes Underwriting
It’s not only renewable energy that faces these challenges. Drysdale added: “Hospitality is another sector where again the traditional market has quite limited appetite because of the exposures to natural catastrophes.
“Traditional insurers are quite reluctant, terms and conditions are restrictive, and prices are high.”
The Asia-Pacific region stands out in this narrative. “We’ve seen quite big growth, in both demand and the number of policies that have been bound, in the region around parametric insurance,” he said.
Growing awareness
Across the broader spectrum, parametric insurance is steadily gaining traction. “Things seem to be changing due to the hardening market. The awareness around parametric is increasing, with brokers and insurance companies now moving into parametric insurance where perhaps they hadn’t before,” Drysdale noted.
“Again, that’s helping to increase the size of the market.”
He sees parametric moving more into the mainstream in the future. Although many products centre around climate risk, he believes it won’t be long before we see “more parametric products outside climate risk and towards other emerging risks”.
“It is still going to be a difficult market for clients who suffered losses to find adequate capacity.”
Regarding future market dynamics, Drysdale expects the market “not to harden much next year” but rates “still to go up”. He noted that some Asian markets, such as Taiwan and the Philippines, are seeing large pricing corrections.
“Some of the markets saw quite large corrections, with large increases on treaties. This year, the expectation is that the increases won’t be anywhere near as large,” he said, noting expectations of “single-digit increases”.
“While the peak of the hard market may have passed, it is still going to be a difficult market for clients who suffered losses to find adequate capacity at terms, conditions and pricing that they would have been used to,” he acknowledged.
Rounding off his insights on innovation, Drysdale believes that “artificial intelligence (AI) will be a huge disrupter” in the insurance market, just as in other industries. “We’re starting to see machine learning being used in insurance on the modelling side,” he said.
“However, the insurance market hasn’t been the fastest adapter of new technologies. It has been a bit behind some other industries in terms of the uptake of AI, but I think it will be as disruptive as it is in other industries. It just might take a little bit longer,” he concluded.
Main image: Shutterstock / Nattakit Jeerapatmaitree