Many insureds have turned to parametrics to address the hardening commercial property insurance rates of the past few years.

And while some thought interest in these alternative risk transfer products would wane as rates softened, inquiries about parametrics remain strong even as experts predict rates will moderate in 2024. Parametrics are becoming a permanent part of the risk management tool kit.

“Despite the easing market conditions in the traditional property space, where it’s becoming easier for customers to fully fill out their programs, we’re still seeing an increase in submissions for parametric solutions this year following an unprecedented year of submission growth in 2023,” said Scott Johnson, head of property, Eastern region, Berkshire Hathaway Specialty Insurance (BHSI).

“This growing interest shows us that parametric products are valuable through all market cycles.”

Effective Risk Management, No Matter the Market Conditions

Scott Johnson, Head of Property, Eastern Region, Berkshire Hathaway Specialty Insurance (BHSI)

One reason parametrics have remained relevant is that insureds now better understand how to use them. Carriers and brokers have worked to educate customers, and today they’re using the policies as an effective complement to traditional property covers, rather than a substitute.

“People are now more aware of how to integrate these products effectively, leading to a growing desire to purchase them for the right reasons,” Johnson said.

As terms have tightened in recent years, parametrics have helped close gaps in property insurance coverages.

“Traditional insurance, although it typically provides broad coverage, still leaves the insured with meaningful retained risk through exclusions, deductibles or sublimits,” Johnson said. “By purchasing a parametric policy, the policyholder can receive funds to help reduce their exposure.”

Insureds also appreciate the immediate financial relief parametrics provide. Since the policy automatically pays out if a specific predefined event occurs, insureds often receive claims payments in 30 days or less.

“This can be a lifeline for customers who have experienced significant losses and need immediate financial support while waiting for their traditional policy to adjust over time,” Johnson said. In recent hurricane events, BHSI has paid out claims in less than seven days.

Choosing the Right Parametric

Interest in parametrics might be high, but insureds must carefully assess their needs to ensure they’re selecting a product that fits their exposures.

“We often see customers proactively approaching us with specific gaps in their coverage,” Johnson said. “They identify areas where they are looking to transfer risk and express concern about potential events that could expose them to that risk.”

Brokers can be a great starting point for these conversations. Many brokerages have brought on specialized parametric brokers who can help insureds assess their risks and find policies tailored to their needs. Informed brokers can help their customers understand products from different companies and the value each solution offers.

“Many brokers have invested in specialized talent who are knowledgeable about parametrics,” Johnson said. “We welcome the opportunity to sit down with a broker and work collaboratively and transparently to optimize the solution for a customer, provide different iterations, and walk through the coverages we can provide.”

Johnson added that “ultimately, the customer wants to purchase something that adds value to their program with a clear understanding of when it will pay out.”

BH FastCAT: A Winning Parametric Solution

Since BHSI launched its parametric product, BH FastCAT, it has cultivated a large, integrated team with deep knowledge of the CAT space. It’s been writing parametric policies since 2020, and its underwriters are excited by the growing awareness and customer appetite to explore parametric solutions.

“BHSI has always been a significant player in the catastrophe insurance market, and we will continue to be. We have invested heavily in understanding catastrophe perils to ensure we can provide stable capacity for our customers,” Johnson said.

“We have brought in talented individuals to help us better understand the various natural catastrophe perils. This investment in expertise has been instrumental in developing products that meet our customers’ specific needs.”

BH FastCAT policies are designed to be consistent and clear for insureds. That process starts with the concise eight-page policy.

“​​Our product is built on the principle of transparency,” Johnson said. “It clearly outlines the process and what gets paid when an event occurs, ensuring clarity for all parties involved.”

BHSI’s parametric policies use quality data from reputable government agencies to determine when an insured event has occurred. These agencies report data in a timely and unbiased manner, allowing the claims process to start promptly.

“This approach allows all parties involved — the broker, the customer and our company — to see in real time whether a policy has been triggered based on the reports from these agencies. By using trusted sources and making the information accessible to everyone simultaneously, we maintain a high level of transparency throughout the process,” Johnson said.

“Our claims team is engaged from the moment the event occurs.”

By emphasizing transparency and creating policies that pay out quickly, BHSI has crafted a parametric solution that works in tandem with an insured’s property policy.

“The challenges of the past few years have highlighted the importance of understanding the different insurance options that are available in the market,” Johnson said. “What we aim to provide is a product that is consistent and clear — one that customers can confidently rely on for the long term — no matter the market conditions.”

To learn more, visit: https://www.bhspecialty.com/.

Berkshire Hathaway Specialty Insurance (www.bhspecialty.com) provides commercial property, casualty, health care professional liability, executive and professional lines, transactional liability, surety, marine, travel, programs, accident and health, medical stop loss, homeowners, and multinational insurance. The actual and final terms of coverage for all product lines may vary. It underwrites on the paper of Berkshire Hathaway’s National Indemnity group of insurance companies, which hold financial strength ratings of A++ from AM Best and AA+ from Standard & Poor’s. Based in Boston, Berkshire Hathaway Specialty Insurance has offices in Atlanta, Boston, Chicago, Columbia, Dallas, Houston, Indianapolis, Irvine, Los Angeles, New York, Plymouth Meeting, San Francisco, San Ramon, Seattle, Stevens Point, Adelaide, Auckland, Barcelona, Brisbane, Brussels, Calgary, Cologne, Dubai, Dublin, Frankfurt, Hong Kong, Kuala Lumpur, London, Lyon, Macau, Madrid, Manchester, Melbourne, Munich, Paris, Perth, Singapore, Sydney, Toronto and Zurich. For more information, contact [email protected].

The information contained herein is for general informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product or service. Any description set forth herein does not include all policy terms, conditions and exclusions. Please refer to the actual policy for complete details of coverage and exclusions.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.