As the property insurance market remains soft, with lower premiums and broad availability of capacity, many corporate insureds are choosing to reinvest savings into parametric insurance. According to Daniel Vetter, Head of Americas at Descartes Underwriting, this trend reflects a growing understanding that lower cost doesn’t always mean better protection.
“The traditional insurance product has become cheaper, but it’s still not a great product,” Vetter explains. “Terms and deductibles haven’t changed significantly, so the coverage remains limited. That’s why many clients are allocating part of their savings to parametric solutions that enhance the overall programme.”
Traditional Insurance: Lower Premiums, Same Exposures
While a soft market offers competitive pricing, many insureds still face substantial financial exposure:
- Deductibles and self-insured retentions remain high
- Policy terms and conditions are largely unchanged
- Result: Lower costs, but persistent coverage gaps
This has prompted risk managers to view parametric insurance as a practical complement, especially when using it to reduce deductibles and improve cash flow after an event.
Using Parametric Cover to Buy Down Deductibles
One of the most common uses of parametric insurance in a soft market is as a deductible buy-down tool.
“If you operate a $50 million hotel in Miami, a 10% deductible is $5 million. That’s a significant out-of-pocket cost,” says Vetter. “We’re seeing clients use parametric coverage to bring that deductible down—often to 5%—using the savings from their traditional premium.”
Because parametric policies pay out based on pre-agreed event triggers (like wind speed or earthquake magnitude), they provide a transparent and fast way to access funds when needed most.
Strong Capacity for Major Perils, Gaps for Secondary Risks
The parametric market currently has healthy capacity for major perils:
- Named storms
- Hurricanes
- Earthquakes
However, capacity for other risks remains limited:
- Wildfires
- Hail
- Tornadoes
“There’s enough capital available for the large, modelled perils,” Vetter explains. “But the market still needs to evolve to better support secondary and climate-intensified risks.”
Parametric Insurance Gains Strategic Role
Previously considered a solution for hard markets, parametric insurance is now a strategic part of many clients’ risk management frameworks, regardless of market conditions.
“Fifteen years ago, these products were seen as a last resort,” says Vetter. “Today, with more players and a broader range of coverage options, clients view parametric as an essential component of their programmes.”
Fast Payouts: A Key Advantage
Parametric insurance provides insureds with rapid liquidity, which can be crucial following a disruptive event:
- Claims are typically paid within 20 to 30 days
- Traditional claims often take over a year
This speed is particularly valuable in today’s high-interest, high-inflation environment, where delayed recovery can have serious financial consequences.
“Liquidity matters,” Vetter notes. “The ability to respond quickly can significantly reduce long-term impact.”
Not a Replacement—A Complement
Vetter stresses that parametric insurance is not meant to replace traditional cover, but to work alongside it.
“They do different things. Traditional insurance is essential for loss-based coverage. Parametric provides clarity, speed, and flexibility. Together, they create a stronger, more agile risk strategy.”
Founded in 2019 and headquartered in Paris, Descartes Underwriting offers advanced parametric insurance solutions to protect corporations and public entities from weather and climate-related risks. By leveraging high-resolution data and proprietary models, Descartes delivers fast, reliable, and transparent coverage tailored to today's complex risk landscape.
In 2022, Descartes launched Descartes Insurance, a full-stack carrier licensed in multiple European markets, with the goal of closing the protection gap and building climate resilience globally.