Six months into his tenure at Descartes Underwriting, and not long after being announced as the new chair for BIBA’s South East and London committee, Ola Jacob sits down with Scott McGee to talk about the potential of parametric insurance, and what his role at Biba entails.
At the recent Insurtech Insights event in London, the subject of parametric insurance was left until 4:20pm on the last day before it had its own designated panel. “Congratulations on making it to the graveyard shift,” said Ola Jacob, parametric insurance development director at Descartes Underwriting.
But even though it was the last talk on the final day of a two-day conference, Jacob spoke about parametric insurance with determined enthusiasm.
And Jacob continued that enthusiasm about insurance in general, but particularly parametric insurance, when he sat down with Insurance Post. “I’m a fan of insurance,” he says. “I believe insurance is a beautiful thing when it does what we promise.” Education and awareness At an Altus Consulting event back in September 2023, the Chartered Insurance Institute’s Matthew Connell and Altus’s Patrick Hayward said some parametric elements could become part of the basic make up of an insurance policy.
And while Jacob believes parametric insurance has the potential to improve the reputation of insurance in general, he realises a lot of people both in and out of insurance still do not have a full grasp of what parametric means.
At the Insurtech Insights panel, one panellist claimed that half the people at the conference still didn’t know what parametric insurance meant. Jacob simply defines it as: “When a pre-agreed condition is met, a pre-agreed payout is made.” His previous employer, FloodFlash, uses parametric insurance to pay out when a flood’s water level reaches a certain height above the ground.
He explains: “Say a business owns a factory, and the key electrics are placed at 50 centimeters [above the ground], you can say: ‘if the flood reaches above 50 centimeters, that business needs a payout of £1m’.
“As long as that is all pre-agreed before the contract is made and signed, that business can plan how they are going to spend that cash. “When that trigger happens, they get the money very quickly.”
“I think FloodFlash is brilliant, but they’re focused on the UK and the US. I needed to be at a company focusing worldwide, and one that also had the ability to look at all nat-cat risks.”
It is in this wider, global nat-cat arena where Jacob feels parametric can really flex its muscles.
“With parametric, sometimes it’s too big to talk about on its own. It is like talking about indemnity on its own,” he says. He claims there are many examples of businesses that that would benefit from parametric solutions, because they operate in areas of the world that have been rampaged by hurricanes or natural catastrophes.
He explains that if a hotel, or any other business, was affected by a weather event that would trigger any clause in a parametric policy, they would be paid straight away and then be able to “bounce back” quicker than those waiting for a loss adjuster or a traditional indemnity claims payout.
“You’ve got these scenarios where you might be on an island in the Caribbean, and a category four or five hurricane goes through the island.
“When that happens, you don’t need loss adjusters, you need your money as soon as possible.”
Having said this, Jacob is not trying to replace traditional indemnity insurance. He thinks parametric insurance can be a good “addition” to the traditional; a way of enhancing the current insurance product.
“Maybe there will be a loss adjuster element to it, but that first £10m of the claim could be paid by a parametric clause in the policy within two weeks. That’s going to make a massive difference to your
business.”
“It’s not an extra step,” he says.
Jacob reveals that, at the moment, loss adjusters are struggling to get around to seeing all businesses that are currently seeking claims related to hurricanes and typhoons over the last year, leaving those businesses unable to function.
“When an event happens, you’ve got this bottleneck effect, because if a hurricane happens with the intensity of a cat four or five hurricane, there are a lot of people to see. You have lots of examples where hotels that have been hit by hurricanes or typhoons in the last year, are still not open. They are still months away from that loss being paid. They are still having [or waiting to have] their losses assessed.”
Built in resilience
Jacob says some companies that operate in these areas are using their parametric insurance policy as part of their risk resilience strategy, and some are even using it as a competitive advantage.
“The kind of companies that we’re looking at, they are trying to figure out how to fit parametric cover in. We started by looking at what they do when a flood happens. They have a policy in place, and they might have a 24/7 team on site. When there is a flood and the river level gets to a certain point, they evacuate
the site. When it gets to another point, they start setting out the flood defences.
“As soon as they have got to each of those points, they have already had a financial loss. As soon as you evacuate, you’ve got a business interruption loss. As soon as you’ve added flood defences on site, there
is a cost to that.
“It all builds up, so you can start adding in where you might want cover, bit by bit.” Jacob says this approach has allowed businesses to understand their nat-cat risks better, increasing their resilience, and ultimately bringing their risk rating down. “This is about understanding the business, understanding how they react to a particular type of disaster, or weather event,” he explains.
“And if you pre-plan that, it is the kind of thing that would be in their risk register. If we’re empowering resilience, it means that the whole loss comes down. So then, as an industry, we’re not seeing these huge losses. At the same time, we find a way to cover those that action what they’re doing to make the risk better. “It is the best of both worlds.”
Examples of success
Jacob gives one named example of a large company that has adopted a parametric insurance solution, and one that he says wishes to remain anonymous.
“Louis Vuitton are the type of customer that have had an experience of it. They know that, because of the way the business is set up, there’s an awful lot of things that aren’t covered by the indemnity policy that
could be covered by parametric.
“Because they operate in parts of the world where these [nat-cat] events happen all the time, if they’ve got a business of that size and they are a creative company, they want to know that if something happens, it will be paid out and they can focus on what they do best.
“There is another example, which is a business that doesn’t want me to reveal their name, because they use their parametric insurance as a competitive advantage. After an event, their stock price went up by 50% because they were the only business that had such a solution, so they bounced back quicker than everybody else.”
Parametric potential
It is not just in the commercial space in which parametric could be adapted and grow, Jacob says.
Parametric could easily be into a personal lines home or motor policy.
“For a home insurance policy, the value of cover could be £30,000 for buildings and contents. If there is a burglary or weather event, for the first £5000 of that policy, it’s covered by a parametric solution, and then if value of the claim goes above that, that’s when the loss adjusters are brought in and they work out the total value of the claim. But the customer gets the £5000 straight away.”
As well as FloodFlash, Jacob also cites firms such as Blink Parametric as pioneers in the personal lines parametric market.
“Blink [Parametric] are brilliant, because it’s quite widespread and it’s very simple. I think it’s a fantastic policy, I talk about that all the time when somebody talks to me about consumer lines.” But for Jacob, his area of expertise, and where he feels the real area for parametric growth, is in the commercial lines space.
“Something that will be traded in the London Market with big corporations, that’s one way to really build a trust,” he says.
“To really give parametric the place that it needs in insurance, it really should focus on commercial lines. To actually move the dial, it’s all about these commercial risks written in Lloyd’s.”
And there has been movement recently. Several firms have announced their intentions to start offering a parametric solution.
Chaucer recently announced its entry into the weather insurancemarket with a parametric product, Holidaysafe has joined forces withDelayOK to offer policyholders on-the-spot compensation for flightdelays, Blink Parametric’s flight disruption solution is now beingrolled out across the MAWDY Ireland InsureandGo travelinsurance brand, and FloodFlash is launching a product to supportbusiness interruption (BI) coverage in the United States.
But Jacob says we have barely even scratched the surface on what parametric could do. “I believe the parametric industry is probably only at maybe 3% of its potential, and that is massive. We have already got massive premium numbers on our books, but I don’t think we’re anywhere where we could be in the world.”
Descartes
With this in mind, why did Jacob opt to leave FloodFlash, and why did he decide to join Descartes Underwriting when considering his options?
“I wanted to be at a company where they have access to solutions that could help people worldwide.”
Jacob reveals that he could have joined an incumbent, but that he wanted to go somewhere faster moving, with more of a focus on parametric.
“I have nothing against incumbents, but they are focusing on all sorts. Parametric is a small team within a big company, and everything takes a bit longer.”
He says Descartes had the best combination of what he wanted, and that it is the best place for him to sell the idea of parametric to a global audience: “Descarte have a $70-$200m line for parametric, which is one of the biggest, so it means that they have got some weight behind them. And then also, the team consists of 160+ climate and data scientists that focus on the ever-changing weather perils, forecasting how many times they expect a certain event to happen.
“Historically, they’re looking at the science of why a hurricane forms, and that forms part of the underwriting process. They’ve got dedicated research and development team which is part of the core of the company.
“I thought that combination was unique.”
Biba committee chair
Jordan was also recently announced as the chair of the South East and London committee for the British Insurance Brokers’ Association. He said at the time that “the awareness levels of insurance are really low with students”.
He adds he is now on a mission to demystify the negative reputation insurance has developed.
“I can sit around a table of strangers and explain what I do without using the word ‘insurance’, and sometimes they asked me if I work fora charity. “So when we do it right, I think what we do is good.”
When he was offered the role by Biba, he says it was an easy choice. “Biba is one of the organisations that are fighting for the image of insurance,” he says. “And in particular, what I like about what we’re focusing on in London is talent, and the next generation of talent from some of the most underserved parts of the world, which is close to my heart.
“It’s nice that we’re reaching out. Sometimes it’s just an awareness issue.”
At Biba’s manifesto launch, the trade body announced it was partnering with two London schools from Tower Hamlets partnering with two London schools from Tower Hamlets , – the Bishop Challoner Catholic School and the Mulberry Academy.
Jacob remembers: “We did a presentation to 400 young adults, 16-19year olds.” He says that the reaction from the students surprised him. “In the beginning, some people were worried about whether they would be interested in what we had to say about insurance. But with the topics that we covered, including parametric, everybody was very interested.” He then reveals what happened next. “After that, people could sign up for a day in Lloyd’s, and it was over-subscribed. We are following that up with a one week work experience place in July.”
Jacob says the great thing about this scheme is that it is something that can be adopted nationwide, and says the reaction from the industry has been really positive. “The thing that excites me about this is that this is a pilot. And the idea is to roll it out across the whole in the UK. And there’s so much excitement from the other chairs, then also there’s so many people from the industry that have reached out to me via LinkedIn.”
Mentorship
Jacob says he feels the need to help younger people, from all backgrounds, to enter insurance comes from those people that helped him in his earlier insurance days. “But when I think about insurance, I think about a lot of people, different people that have helped me in one way or another. I have a role now that I have taken upon myself to make sure that human connection that I felt, that’s helped me, is shared with others.
“The onus is on me to shine a light on someone that might look different.”
He reveals one figure that really helped him in his early days isDominic Christian, global chairman of reinsurance solutions at AonUK. Jacob recalls the first time he met Christian at an event.
“He came up to me and said: ‘You are a no-brainer’, and since then, he has done everything he can to help me in my career.”
Jacob wants to be a similar kind of mentor for any insurance newcomers. “It is my role now to help others coming into the industry.” Jacob is promoting diversity in insurance because he feels that when an industry is trying to solve a problem, having more diversity around the table is better.
“I don’t care what they look like, I always want it to be the best. And that way, we can come up with amazing solutions.” But he says if someone is looking at insurance and doesn’t see their place, to not let that stop them.
“If there isn’t a place for you now, then disrupt it. Maybe not even disrupt it, maybe there’s something that has already been created that you can join, and help be a part of to develop a better way to do things.”
That is something Jacob has done himself. While he admits parametric insurance is nowhere near the potential he believes it can reach, he is definitely going to be there at the forefront of its development.
