Descartes Underwriting, the specialist in corporate parametric solutions, sees a growing opportunity to bring fresh, sustainable parametric capacity to Asia, particularly within frequency layers where insurers are facing higher retentions, according to Ben Qin, Head of Asia Pacific.
In an interview with Reinsurance News around the Singapore International Reinsurance Conference (SIRC), Qin noted that Asia has traditionally lagged behind regions such as the US and Australia in adopting new insurance solutions. He said that in parts of Asia, adoption of both life and general insurance has only risen in recent decades but, generationally, “it’s starting from almost zero.”
Qin continued, “As a proportion of climate-related risks globally, Asia takes up a lot of it. It’s got the population for it; half the world’s population is sitting in North and Central Asia. So, we’ve got the population density factor, we’ve got the actual settlements, we’ve got the economic dollars on the line. So, if you think about the risk exposure, it’s huge.
“We’re only at the tip of the iceberg in regard to adoption. If people never adopted traditional insurance products, it’s always good to start afresh and say parametric is a new type of product, a new type of cover. So, we see pretty good adoption and understanding of it and maturity over the past few years since Descartes opened offices in that region. We see nice potential in the region to do something meaningful.”
He identified a particularly strong opportunity in the frequency layer, where parametric solutions can help fill a protection gap left by the retreat of traditional reinsurers as they looked to mitigate volatility amid rising losses from so-called secondary perils.
Qin explained, “The retentions that local insurers and cedants have historically enjoyed aren’t coming down. These insurers are now having to bear more of the volatility in that frequency bit, and that’s where we are seeing opportunity come up.
“Because we are representing fresh and new capacity in the market that’s not taken up by the large reinsurers of the world, it’s a very refreshing look. Our local partners, brokers, and cedants are saying that it’s a fresh new appetite. It’s sustainable capacity in the frequency layer, where historically they have enjoyed the volatility smoothing by reinsurers in a traditional manner, but now we are bringing that back in that reinsurance space.”
He added that the greatest growth potential in Asia lies in solutions built on reliable, measurable indices, which can support sustainable, long-term adoption.
“The trick is coming up with the right index so that both the buyer and the seller are comfortable with the index to be used and it’s sustainable, and not just a band aid solution to address some kind of a surface level retention solution. It’s here to stay. So hopefully some of the modelling companies, some of the third parties, some of the brokers can rise up to the challenge and come up with good, reliable and accurate indices for the likes of us, for capacity providers, to really provide clients with appropriate solutions,” said Qin.
Qin noted that parametric solutions were once primarily used for non-damage business interruption in sectors such as agriculture and energy, but as capacity tightens across traditional insurance markets, new opportunities have emerged.
“With us, because we’re a capacity filler, we’ve seen a lot in construction, infrastructure, the public sector, the PPPs, plus all the government stuff—those are probably the bigger ones and the ones that have the requirements and the demand. We still see all the esoteric, non-damage business interruptions, except they’re not so esoteric anymore.
“The one that’s evolved a lot in the thinking over the years is actually hospitality—hotels and leisure groups—where the business interruption element of a traditional property damage product never really served its purpose. If you think about revenue earning or income or interruption from a normal bricks-and-mortar point of view, like a factory, then the factory is down from a damage perspective, therefore you face interruption of revenue. Whereas hotels and hospitality, even the surrounding airport, if people can’t get in or there’s depopulation from an event, there’s a non-damage element to it. And after COVID, everyone tightened up on wording and really matured in their understanding of it. So, we’ve started to see a lot from that sector as well, which is always good.”
Qin also highlighted that Descartes’ strength lies in its deep technological foundation, which has been central to the company’s approach since its inception in 2019.
“The backbone of Descartes has always been built on technology, AI adoption, the whole idea of using device and hardware to enable some kind of an onsite measurement. We’ve always had that element from day one. From the pre-selection of risks, building up risk models to pricing and underwriting. So, from all of that we’ve got physics based models to enable a better and accurate pricing of risk, and that’s from a global scale, scraping satellite imagery, IoT, and other forms of external data to come up with, effectively, the ground truth,” he said.
He added that this technology-driven approach gives Descartes the infrastructure and resources to view risk differently from other insurers and reinsurers.
Qin revealed, “Last year, we were awarded by the French state-owned entity GENCI—the controllership for three of the larger computing centres in France—three million computing hours to enable a piece of work on wildfire modelling, and hail as well.
“So, we’re definitely leveraging both the development ops side, which is the AI side, and also the hardware side, which is infrastructure. Just the sheer amount of computing power needed to get something done. From a technology angle, that’s all very common, but from an insurance point of view, no one’s really done that before.
“So, that’s all the pre-processing, pricing, and underwriting part. On the post-processing side, we’re starting to use IoT sensors and devices to accurately depict the client’s exposure to a particular event or loss. And we’re scraping satellite imagery post-loss, too. For example, you’ve got a vast amount of bushland, and you’re really looking for a pattern in that imagery after a loss. That, again, requires a huge amount of computing power. So, it’s all evolving over the years.”
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