A parametric reinsurance revolution is under way in APAC: Descartes

The Asia-Pacific market is experiencing a pronounced surge in interest and adoption of parametric solutions, now extending beyond insurance and gaining traction on the reinsurance side, in particular around secondary perils, Robert Drysdale, head of Southeast Asia at Descartes Underwriting, told SIRC Today.

“I remember someone saying parametric insurance was a product people admired on the shelf but then put back,” he said, reflecting on the sector’s growth and changed perception in the past few years.

“There has been a continued increase in traction in the parametric market, especially in the last 12 months,” Drysdale said. “We’re seeing more insurance companies using parametric solutions to reinsure specific parts of their books, particularly where certain perils are involved.”

As climate volatility escalates, perils such as hailstorms, wildfires, and extreme temperatures are pushing insurers and reinsurers to adopt innovative coverage options.

“With the hardening market, clients and brokers were pushed to consider alternative risk transfer mechanisms, and parametric solutions benefited from this increased interest,” Drysdale explained. “That novelty, combined with necessity, keeps the momentum going.”

He noted that a growing number of brokers are now establishing competencies in parametric insurance, with a rise in geographical spread, and the diversification of sectors exploring parametric covers.

“Our focus here is firmly on climate risk, natural catastrophes, and extreme weather perils.”

He underscored the broadening array of parametric products and the industry’s urgent focus on secondary perils. “Covers around hail, flood, wildfire, drought, and extreme temperatures have seen considerable development,” he pointed out. These perils, often previously neglected or insufficiently covered, have now moved to the fore.

Beyond nat cats

Descartes Underwriting has expanded beyond nat cats, venturing into areas such as parametric cyber insurance. These new products have launched in Europe, and Drysdale expects their eventual rollout in Asia.

“Emerging risks are part of our broader strategy,” he said. “We assess new entries carefully, focusing on gaps in traditional markets and where our data-driven approach provides a competitive advantage.

“We are looking to introduce them to Asia eventually,” he added.

For now, Descartes’ Asia-Pacific strategy remains climate-centric. “Our focus here is firmly on climate risk, natural catastrophes, and extreme weather perils,” Drysdale shared.

The company is introducing products such as its new hail cover, which leverages radar data instead of traditional sensors. Non-climate risks, including engineering and agriculture, are on the horizon but will debut in Europe before Asia.

Strategic growth in Asia is aligned with sectors investing heavily in infrastructure, renewable energy, and agriculture. “In Asia, those areas—alongside agriculture—remain crucial,” he said.

Drysdale highlighted the need for more awareness and solutions around secondary perils. “We’re keen on increasing awareness and the available parametric solutions for these risks,” he said of Descartes’ top priorities in Asia.

Capacity shortages in traditional lines of business have opened the door for parametric solutions. “We’ve seen shortages, especially for larger projects,” Drysdale admitted. “Parametric insurance plays a significant role here, assisting with major corporate placements where traditional capacity falls short.”

Capital inflows

Looking ahead, Drysdale is optimistic about capital inflows into the parametric sector through 2025. “More insurers and reinsurers are entering the market, which is great for building out large parametric capacities,” he remarked.

He recognises the need for collaboration. “Getting close to a billion dollars in capacity for a single parametric cover will likely involve co-insurance and co-reinsurance arrangements,” he said.

The integration of insurance-linked securities (ILS) into the parametric space also holds promise. “ILS products often use parametric triggers, making them closely intertwined. There is a huge potential for ILS to complement parametric and vice versa,” Drysdale said.

“There is a need for new products and innovation. The world is changing quite significantly, and the insurance industry needs to be careful not to be left behind,” Drysdale said in his main message to the industry.

On the SIRC theme of “Revolutionize Re/insurance” he envisions transformation led by greater openness to parametric solutions. “I’m biased, but embracing parametric insurance and alternative risk transfer mechanisms would certainly revolutionise the industry,” he concluded.