Parametric policies have their use cases and will be appropriate for some captives to explore, but the key to success should be a collaborative approach that delivers a bespoke solution for the insured, according to Emma Sansom, Zurich’s group head of captives.

Speaking on the Global Captive Podcast, recorded at the European Captive Forum in Luxembourg in November, Sansom and Francesco Capraro, reinsurance captive operations manager for Saipem’s Switzerland-domiciled captive, Sigurd Ruck, reflected on the key themes from the event, including fronting and reinsurance, parametric solutions, cyber and developing the next generation of talent.

Sansom said while Zurich does not pro-actively market a parametric offering, it has worked on several solutions with clients that both involve a captive and go direct to the market.

“It needs to be a bespoke product that we work closely with our customers for,” she explained.

“We tend to take a more collaborative approach, so we’re not necessarily out in the market saying that we write parametric and this is our product. It’s a bespoke product for each customer need.”

Capraro said he views parametrics as being an increasingly useful solution as extreme weather events become more common and available data is more reliable and accurate.

A parametric approach can avoid disputes over force majeure, and also help with coverage when complex supply chains are involved where a traditional indemnity policy might have to grapple with several different wordings for each contractor’s policy.

“For a parametric you can skip all of that,” Capraro said.

“Having the capital when you need it, so the timing is very important, but also where you need it because you can see through the chain where you have the exposure.”

Sansom said basis risk is a challenge when it comes to getting the parametric policy right and can “make or break the product”, but it can be an effective approach in the right situation.

“It’s a good way of augmenting an existing structure,” she added. “We’ve seen examples in the market where customers have completely taken out certain massive perils and put them in a parametric product.

“From what I’ve heard, that’s working really well for them. I don’t think it’s going to be right for everyone, and it’s not right for every risk, but there’s loads of opportunity there.

“It’s a way of providing additional capacity and there’s opportunity for customers to be looking at how they can utilise this in an innovative way.

“The challenge that we have sometimes is just monitoring the risk and the trigger points, making sure that if we need a double trigger to ensure it remains an insurable product, then we craft that.”

Listen to the full Global Captive Podcast discussion with Zurich’s Emma Sansom and Francesco Capraro, of reinsurance captive Sigurd Ruck, on the Captive Intelligence website here, or on any podcast app. Just search for ‘Global Captive Podcast’ on any podcast platform.