The Future of Insurance The Future of Insurance – Megan Linkin, Head of Parametric Nat Cat Americas, Swiss Re Corporate Solutions
Episode Info
Dr. Megan Linkin is the Head of Parametric Nat Cat Americas for Swiss Re Corporate Solutions, based in New York City.
She has extensive expertise in parametric and structured insurance and reinsurance solutions. Megan's primary responsibility is the origination, development, structuring and underwriting of parametric insurance solutions that protect corporates and governments against losses incurred due to natural catastrophes or other disruptive events. Before joining CorSo in 2019, Megan worked for Swiss Re's Public Sector Solutions team, focusing on the development of insurance products to address the unique financial needs of public sector entities, from federal governments to municipal service providers. Prior to re-joining Swiss Re in 2012, she worked as a weather derivative underwriter and catastrophe bond analyst at Allianz Risk Transfer, structuring weather solutions for the energy, agricultural and tourism industries. Between 2008 and 2011, she was an atmospheric perils specialist for the Swiss Re Cat Perils team; her responsibilities included assessing the insurance risk posed by hurricanes, tornadoes, hail and winter storms globally and developing pricing tools and techniques for underwriters, actuaries and insurance-linked security traders.
Megan has designed several award-winning parametric insurance solutions, such as Swiss Re STORM, awarded the Business Insurance Insurtech Initiative of the Year in 2020, and Swiss Re HAIL, awarded the Business Insurance Innovation Award in 2021, and Inside P&C's Underwriting Initiative of the Year in 2022. She is one of Swiss Re's experts on climate change science, natural catastrophes and the innovative insurance solutions that exist to address them. Megan has given invited presentations to the state of New Jersey, the New York Academy of Science, Rutgers University, and the University of Maryland. Her manuscripts have been published in Climatic Change, the Journal of Climate and Weatherwise magazine; she has also authored publications that assess the present-day financial impacts of the 1821 Norfolk-Long Island hurricane and Hurricane Andrew. Megan was profiled by the New York Times in 2010 and NJ Biz in 2013, and has been interviewed by NBC News, the New York Times, the Washington Post, the Wall Street Journal and Huffington Post. She has testified before the United States Senate regarding the impacts of climate change on the insurance industry, and has appeared on The Weather Channel. Megan was named one of Reactions Rising Stars of the insurance industry in 2014.
Megan received her Ph.D. and Masters of Science in atmospheric and oceanic science from the University of Maryland and graduated magna cum laude from Rutgers University with a Bachelor of Science in meteorology and a minor in mathematics. She received her Certified Consulting Meteorologist Seal from the American Meteorological Society in February 2013. She is an active member of the American Meteorological Society, the American Geophysical Union and the New Jersey Climate Adaptation Alliance.
Episode Overview:
Introduction to Parametric Insurance
Parametric insurance is a type of index-based insurance where payouts are determined by the intensity of an event rather than the actual incurred loss. This pre-agreed value policy uses specific event metrics to trigger claims.
Background and Evolution
The concept of parametric insurance has roots in weather derivatives from the late 1990s. Initially focused on natural catastrophe risks like hurricanes, tornadoes, and hail, it has evolved significantly. Swiss Re, with its deep involvement in this space for over 15 years, has seen a shift towards insurance contracts rather than purely derivatives.
Parametric Insurance for Governments and Corporations
Parametric insurance has resonated with government buyers due to their role as first responders and insurers of last resort after natural disasters. It provides a mechanism to cover immediate costs like infrastructure repair and emergency responder salaries, which traditional policies often don't address.
In the late 2010s, after significant hurricane activity, there was a surge in interest from the corporate sector, particularly in hospitality and heavy industry, highlighting the value of parametric solutions for business continuity.
How Parametric Insurance Works as an Insurance Policy
While distinct from traditional insurance, parametric policies function as insurance contracts. They require a proof of loss and include a broad definition of "ultimate net loss" to encompass direct or indirect, physical or financial losses traceable to the event. Clients attest that their incurred losses exceed the parametric payout, ensuring there's no windfall. The triggers are set to cover catastrophic and disruptive events, aligning with the core purpose of natural catastrophe insurance.
Addressing Skepticism
Initial skepticism often labels parametric insurance as gambling. However, modern parametric policies, developed with dedicated underwriters and product designers, work closely with clients to understand their historical losses and pain points. This ensures that triggers are set at intensities that allow clients to recover funds for actual losses, including business interruption and pre-event expenditures made for resilience.
Expanding Perils and Future Growth
While hurricanes and earthquakes are the most recognized perils for parametric insurance, the market is expanding:
- Severe Convective Storms: Parametric coverage is now available for hail and tornadoes, supported by data providers offering hail footprints and tornado track information.
- Flood: Addressing flood risk parametrically has been a challenge due to its various causes (nor'easters, hurricanes, rainfall, river flooding). However, advancements in satellite technology and data analytics are enabling parametric flood solutions.
- Emerging Areas: Concepts are being explored for other event types, potentially leveraging data on flight traffic, restaurant foot traffic, and hotel bookings to assess disruption.
Key Requirements for Parametric Insurability
For an event to be insurable on a parametric basis, it must meet three key criteria:
- Randomness: The event must be a random, external shock.
- Independent Data Provider: A reliable, independent entity must provide consistent data on event intensity or monitoring.
- Modelability: The probability of a given event intensity must be determinable, either through stochastic catastrophe models or long historical time series.
Future Outlook and Holistic Risk Management
Parametric insurance is seen as a vital tool for managing increasingly complex and interconnected global risks. It can complement traditional insurance to provide solutions for supply chain disruptions and contingent business interruption. The industry is encouraged to embrace innovation and develop new solutions to address evolving exposures. Parametric insurance is not an "either/or" solution but a valuable component of a holistic risk management strategy, enhancing client resilience when paired with traditional coverage.
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