Swiss Re, Alabama Debut First-in-the-Nation Parametric Coverage for State Fund

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July 27, 2010 Tuesday 05:01 PM EST

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Swiss Re, Alabama Debut First-in-the-Nation Parametric Coverage for State Fund

Sean P Carr

MONTGOMERY, Ala.

The Alabama State Insurance Fund signed a deal with Swiss Re for what the insurer is calling first-in-the-nation parametric coverage for the fund's catastrophic hurricane exposure.

Under the three-year agreement, the Alabama SIF will receive compensation based on the physical characteristics of a disaster, such as windstorm speed. Rather than gathering information, then filing a claim and waiting for payment, the SIF will automatically receive payments from the insurer when identified thresholds are reached, said Nikhil DaVictoriaLobo, a Swiss Re public sector vice president.

The key to parametric coverage is "transparent triggers, which lead to very rapid payments," DaVictoriaLobo told BestWire. "You can cover risks that are beyond traditional insurance. You can pay very quickly and also, for the public sector, you can offer tremendous efficiency in how they can manage their business and their administration costs."

Alabama established the State Insurance Fund in 1923 to insure state-owned properties, K-12 school systems and state university properties. The fund establishes premiums based on loss exposure, issues coverage documents, and pays for losses. It falls under the state Department of Finance and is not overseen by state insurance regulators, insurance department spokesman Ragan Ingram said.

"This transaction marks a milestone for the state of Alabama in identifying and managing key risks. Based simply on the wind speed of a hurricane, we can now receive funds rapidly to cover our immediate costs," finance department risk manager Ben Spillers said in a statement.

DaVictoriaLobo offered Haiti as an example of parametric coverage working. In the aftermath of the Haiti earthquake, the government received a check in 10 days that it used immediately to pay police. Swiss Re is the lead reinsurer of the Caribbean Catastrophe Risk Insurance Facility, a risk-pooling facility owned, operated and registered in the Caribbean for Caribbean governments. The CCRIF is designed to limit the financial impact of catastrophic hurricanes and earthquakes to Caribbean governments by quickly providing short-term liquidity when a policy is triggered (BestWire, Jan. 13, 2010).

"The premise of the parametric coverage is much broader than just insurance and rebuilding," he said. "It's really trying to cover these funding shortfalls that governments have to take on following disasters, and in that sense, what we're trying to do is really take the burden off the taxpayers in the end and try and transfer some of that risk at least to the private market."

Swiss Re America Group has a current Best's Financial Strength Rating of A (Excellent).

The full interview with Nikhil DaVictoriaLobo can be accessed at http://www.ambest.com/media/media.asp?RC=176294

(By Sean P. Carr, Washington Correspondent: [email protected])

July 28, 2010

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