Trigger-based insurance that can pay out before adjusters arrives

Local insurance brokerages are pushing parametric coverage as a complement to traditional policies for companies still stinging from shortfalls exposed by two recent hurricanes — and one Kingston firm is bringing the world’s largest reinsurers along to make the case.

“Clients told us after the last two hurricanes that replacement-based policies alone weren’t meeting every need,” said Gerard Fontaine, president of Frazer Fontaine & Kong Insurance Brokers (FFK) in a Financial Gleaner interview. “Parametrics comes in as a nice gap-filler — a complement to traditional insurance.”

Frazer Fontaine & Kong Insurance Brokers (FFK), a 50-year-old brokerage, recently hosted risk managers and senior executives at the AC Marriott Hotel in Kingson to detail how parametric policies work and why they can pay claims faster than conventional indemnity programmes.

Representatives from at least six global carriers attended, including Berkshire Hathaway Specialty Insurance, Liberty Mutual, Munich Re, Swiss Re Corporate Solutions, and parametric specialist Descartes Underwriting. “We brought the largest markets here to answer questions from the underwriters’ mouth,” Fontaine said.

Unlike conventional indemnity policies, which reimburse measured losses after an adjuster assesses physical damage — a process that can stretch for months — parametric contracts pay a pre-agreed sum the moment an objective trigger is met. A hurricane of defined intensity crossing within a set radius of a client’s location or an earthquake surpassing a specified magnitude, initiates a claim. No site visit is required. Settlement begins once an independent agency such as the US National Hurricane Centre or the US Geological Survey (USGS) confirms that the threshold was crossed.

FFK’s seminar materials illustrated a standard hurricane structure: a named storm of Category 3 to 5 entering a 50-mile radius around a client site triggers a payout. Earthquake designs follow similar table-driven schedules based on USGS magnitude and epicentre proximity. The brokerage also highlighted a refinement that uses the maximum of wind speed or central pressure when categorising storms — reducing the risk that a damaging hurricane fails to trigger on a technicality.

“It has to be tailored for each company,” he said. “But once you’ve bought that limit and the event happens, you get paid for what you purchased — and you can use that for anything your business needs.”

Because payouts are not tied to line-item repair costs, executives can deploy funds immediately to working-capital pressures without waiting on loss adjusters.

The macro backdrop lends credibility to the pitch. Jamaica has used parametric instruments at the sovereign level for years through the Caribbean Catastrophe Risk Insurance Facility, a regional risk-pooling mechanism. Following Hurricane Melissa last October, CCRIF announced the largest payout in its history — US$70.8 million on Jamaica’s tropical cyclone policy, followed by a further US$21.1 million for excess rainfall, both within 14 days of trigger verification. The speed of those disbursements has not been lost on corporate boards weighing their own coverage structures.

Programmes can start at a US$50,000 limit and scale into the millions. On pricing, Fontaine declined to offer benchmarks. “There is no way to say what’s cheap or more expensive,” he said. “Cost is one thing, but value is the most important thing.”

neville.graham@gleanerjm.com