Throughout Florida, a series of 30-foot concrete poles are being erected with what look like wingless airplanes on top—the harbingers of a new form of insurance.
Behind these installations of super-strong anemometers for wind-speed recording is an outfit called WindX, which will use the equipment to provide certified data for what is referred to as “parametric insurance.”
Peter Nakada, the managing director of Risk Management Solutions (RMS) Consulting in Hackensack, N.J.—which is partnering with WeatherFlow, a firm which is providing the wind-monitoring devices—said parametric insurance is a simpler way to insure risk.
He explained that unlike traditional insurance, where the payoff comes after a measured amount of damage is confirmed, parametric pays off when a certified amount of wind speed, ground shake or flood water level hits predetermined policy levels.
Mr. Nakada said the parametric coverage is something that should interest commercial concerns, because it is possible for weather events to interrupt operations without causing physical damage, which he said is generally required before business interruption coverage kicks in.
There have been jokes that traditional insurance is “the right to litigate over a claim,” whereas with parametric insurance, “the wind either blew 110 mph or it didn’t. So someone shows up with money a week after the wind stops. It’s quick-pay, no hassle,” he explained.
Mr. Nakada said his firm developed the parametric idea nearly two years ago and has been working with insurance industry players to develop different products based on it. He said RMS turns raw wind-speed data and other information “into numbers that people can use to settle transactions.”
RMS, he explained, plans a global parametric program called Paradex, which will involve using equipment sources other than WeatherFlow to offer monitoring and data for earthquake and flood in the United States and elsewhere.
Concerning WindX, he said, “we are just launching this solution and finalizing an agreement with a major broker to offer this, and there is one insurance carrier who is currently offering it.” He did not identify either party.
He said that Paradex plans to serve the capital markets by providing the parametric indices for catastrophe bonds, industry loss warrantees and derivative contracts.
For cat bonds, Mr. Nakada said RMS will create indices based on wind speed that someone issuing a bond would use to create a trigger. In the past, he noted, cat bonds have traditionally paid off after an industry loss estimate certified by the Property Claim Services unit of the Insurance Services Office in Jersey City, N.J.