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Parametric Insurance - a Contingent Business Interruption alternative solution ?

David Price


Have you ever been faced with the trying to find business interruption coverage for a contingent exposure of your clients business, and there is no insurable interest in the 3rd party location ?


Example - an Orland based distributor / exporter that ships all their goods out of the Port of Fort Lauderdale to the Caribbean and is totally reliant on this port. The distributor doesn't have an insurable interest in the port, but does have a financial interest in moving goods through smoothly. If the port is shut down for an extended period of time due to a cat 3,4 or 5 hurricane then the Insured will incur increased financial loss due to delay, contractual penalties and increased freight costs.


The solution may be Parametric cover, it is a very simple contract of insurance which states if the triggers are met then Underwriters will pay up to the contract limit. In terms of Windstorm an example of the triggers would be, the a) wind speed is greater than 75mph for more than b) a minute at the c)stated location (being the port of Fort Lauderdale).


So you can see this type of contract could offer clients a cost effective way to cover an extreme event happening at one of their most volatile hot spots in their distribution chain.


There are lots of other situations where a parametric solution is useful, from insuring extreme weather conditions or natural catastrophe events from snow to Earthquake to a lack of sunshine.


For more information or to discuss a new account, please forward a narrative to a member of the team.

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