In the ongoing struggle to come up with new products to cover catastrophe losses, there is one new twist worth watching--a derivative product that is triggered not by actual losses, but by a force of nature, regardless of the subsequent damage claims. Read on for details and let me know what you make of this initiative?
You can read full details about this so-called "parametric insurance" by clicking here.
But suffice it is to say that basically, the product pays off not when a certain amount of damage is confirmed, but when a certified level of wind speed, ground shake or flood water hits.
Earlier this month, at the annual Property-Casualty Insurance Industry Forum in New York, South Carolina Insurance Director Scott Richardson suggested settling disputed disaster losses under a similar coverage standard. It is an approach worth studying.
As reported by our own Susanne Sclafane (click here for the full story), Mr. Richardson would solve wind-versus-water debates with what he referred to as an “indeterminate loss formula.”
"This approach would use sophisticated models together with inputs such as wind speed, tides, depth and distance from water, to segregate wind and water losses rather than searching for watermarks after the fact," Ms. Sclafane wrote.
What do you folks make of this?
Comments (2)
I would like to see a lot more details about how parametric insurance will work (premium scenarios @ various locations; claim scenarios @ varying wind speeds and proximity to maximum speeds, etc).
Of course, nothing is immune to litigation, but this sounds like it's trying to remove as many variables as possible.
Posted by Chris M. | January 24, 2008 11:12 AM
Posted on January 24, 2008 11:12
The problem I have with this system is its use of widespread-damage factoring.
Indeed, it would be a good tool to use for wind-versus-water debates in the case of catastrophic losses. But what about the misuse and public manipulation that surely will follow? I see fraudulent claims being filed on undamaged property when the benchmarks reach the agreed level.
On the flip side, I also see legitimate property losses not being covered due to benchmarks not being met.
I pay my annual premiums to cover liability and property losses when that occasion happens. I do not want to be denied coverage because the benchmarks were not met, and my neighbors did not suffer the same damage.
Posted by Michael Burnell | January 24, 2008 11:48 AM
Posted on January 24, 2008 11:48