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Parametric insurance the way forward; Cooper Gay exec

Parametric insurance will make it easier for public organisations to buy insurance against catastrophes, according to Cooper Gay's Latin America CEO Steve Jackson.

There is a growing gap between insured and economic losses from disasters, Jackson noted, speaking at last week's BrokersLink Global conference in Miami.

"This is especially prevalent in developing and emerging markets that can ill afford any shortfall," he said, citing the Haitian earthquake last year which caused economic losses of $6bn yet only $200mn were insured.

Parametric insurance pays out based on agreed triggers rather than covering the actual losses of a policyholder.

This can include, for example, cover for earthquakes based on intensity and floods based on rainfall amounts or water levels.

But at the cutting edge of parametric contracts, cover could be provided for risks such as drought based on a vegetation index created by measuring bio mass via satellites, Jackson said.

"This is a very exciting area of insurance development and, when combined with more traditional approaches, will enable our industry to provide affordable protection for the public entities that are incredibly important to vulnerable nations in CAT affected regions."

This comes after Marsh CEO Martin South recently flagged parametric cover as an area that the insurance industry could pick up and expand on.

As previously reported in The Insurance Insider, South said these type of products at least "do what they say on the tin" because they provide more timely payment for clients.

"You pay a premium and if something happens you know you're going to get paid in a timely fashion," South said, speaking at the Insurance Institute of London.

The Caribbean disaster insurance fund, the Caribbean Catastrophe Risk Insurance Facility, provides regional governments with cover against hurricane and earthquake risk on a parametric basis.

Munich Re's proposed $10bn SOS offshore energy liability facility would carry a parametric trigger based on direct compensation claims made against the insured.

This year's Muteki cat bond also paid out $300mn shortly after the Tohoku quake triggered its parametric cover.

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