One of the most successful hedge fund strategies of recent years — insurance-linked securities — is latching on to an old idea whose popularity is suddenly soaring.
Parametric insurance, where policyholders get quick payouts if weather-related metrics are met, used to be the preserve of small businesses and farmers in developing countries. Now, it’s a rapidly growing market luring large corporations across the rich world.
Sebastien Piguet, co-founder and chief insurance officer at Descartes Underwriting, says parametric models are filling a gap left by other types of insurance policies. That’s as climate change and more frequent extreme weather events challenge standard coverage models.
“It’s much more challenging to find capacity for this kind of coverage with traditional insurance,” he said.
Companies using parametrics now include French phar…