Although relatively infrequent, British Columbia (BC) is not immune to earthquakes. The last major earthquake to strike BC was centuries ago, understandably justifying why they are rarely front of mind for corporates and public entities. As a result, we see low penetration of traditional earthquake insurance and meaningful retained earthquake exposure. However, when an earthquake does occur, the damage, both physically and financially, can be devastating, leaving businesses and public entities struggling to recover. Following an earthquake, those impacted are often left covering various costs from traditional insurance coverage gaps or uninsured losses, such as loss of revenue or emergency response expenditures.
Parametric insurance is a great tool to complement a traditional insurance program, or to offer standalone coverage for uninsurable or underinsured assets. Parametric insurance enhances the client’s ability to recover quickly and return to scheduled business. Unlike traditional insurance which is paid out based on the actual physical loss sustained, parametric insurance payment is based on the physical intensity of the underlying loss-causing event (i.e., the earthquake). This allows for quick and transparent payment when the money is needed the most – to date, most, if not all, North American parametric policies have been settled within 30 days. Considering the payout is not tied to the actual physical loss sustained, payouts can be used to address any type of losses related to the event, from property damage to revenue shortfalls. Current buyers have used proceeds to infill traditional deductibles, repair uninsured assets and facilitate emergency response.
Parametric insurance has gained more traction over the past few years amid increasing extreme events and the hardening market. More corporates and public entities – from hotels, municipalities to manufacturers and major airports – have added parametric insurance as a critical instrument in their risk management toolbox. One such industry is the construction industry, where natural catastrophes can have significant impacts on project completion and budget overruns.
As an industry example, Parametric insurance can be used to complement builder’s risk coverage for various types of projects in the construction industry. A parametric earthquake cover can be used to infill a large percent earthquake deductible, cover construction delays, mitigate increased costs of material post event and unanticipated engineering inspections. Proceeds can even be used to pay unbudgeted costs for re-routing deliveries around damaged infrastructure providing additional financial support for employees. Coverage can also be provided on a multi-year basis, aligning the policy term with the project term.
Visit the Swiss Re Corporate Solutions website to learn more about our Parametric solutions