InsurTech Ohio Spotlight with Max Clarke
Max Clarke is the Co-Founder & CEO of Plover Parametrics, an SaaS data platform for insurers to bring new parametric insurance products to market quickly and minimize the cost of claims administration. Max was interviewed by Michael Fiedel, a Managing Director at InsurTech Ohio and Co-Founder at PolicyFly, Inc.
Max, how are parametric strategies performing?
“The market is growing quite fast – industry estimates are that 2021 gross written premiums were around $1 billion and growing around 15% a year. From the policyholder perspective, parametric strategies perform well in any environment where speed, transparency and cost are important. From the carrier perspective, they're a good fit wherever carriers want to grow premium and limit tail risks. One example where you see both of those is Florida, where the wind market is undergoing a lot of volatility. In response, a number of indemnity carriers are reconsidering their property exposure, and parametric products are being sold by the thousands to property owners who want another tool to protect their homes and get a fast payout.
Policyholders have all heard the horror stories of suffering storm damage, only to have a claim denied because the damage was adjudicated to be caused by an excluded peril (like water damage from rain as opposed to wind or storm surge). To the policyholder, parametric products offer a more transparent and cheaper alternative that mitigates the basic risks of indemnity products. There's the transparency piece: parametric products don't have exclusions like traditional indemnity policies, so there's no process of adjudicating the cause of damage. Because there's no claims process, the whole experience can be much faster. Payments can be made in days to weeks – helping resolve TPA (Third-Party Administrator) bottlenecks.
From the carrier perspective, these products offer some of the highest combined ratios. Carriers save on the expense side because there's no claims or dispute process. To return to the Florida example, there hasn't been a major hurricane landfall in Florida in the past two years. Yet, the Florida wind books of most carriers have not been profitable in the last two years. This is actually primarily due to litigation – and parametric products can actually help carriers limit the loss risks relating to assignment-of-benefits disputes. So, parametrics can short circuit the dispute process, driving better expense ratios. On the loss ratio side, we can help carriers model an event like wind speed with a greater deal of accuracy than the damage or outcome from that event, which gives more predictability to how portfolios of products perform.”
How should new technology vendors approach legacy insurance carriers in order to gain consideration for strategies that they're not familiar with?
“The right framework emphasizes the things that both sides can bring to the table. From our perspective, we see established carriers and brokers as being world class in relationship management. New technology providers, on the other hand, bring access to new data or frameworks for product development. Putting those two things together, technology should preserve and amplify that which the insurance industry already does quite well.
The best case scenario is one that leverages what each party brings to the table. That's why we incorporated as a software company instead of an MGA (Managing General Agent) or a challenger carrier ourselves. Rather than try to compete, we want to collaborate with legacy carriers. We provide the infrastructure, allowing carriers to offer new products through existing distribution networks to help leverage and amplify the value of those relationships. The carrier and the broker bring deep legacy knowledge about underwriting, claims history and relationship management, and the tech vendor brings the data infrastructure and access to new products via software.
As a tech vendor, we try to approach carriers and brokers using the language that they’re familiar with. On the carrier side, this means focusing on the actual business value of our software – the additional pools of premium carriers can access and the impact that premium can have on operating profits. On the broker side, this means focusing on how new products can help brokers collect more commission and strengthen their role as strategic advisors. With parametric products, in the aftermath of a disruption, a policyholder has often just received a cash infusion, and the broker can help them understand how to best allocate it.”
In terms of adopting new technology, how important is it for carriers to invest time to research and understand these new capabilities, even if they're not immediately sure when they're ready to take advantage of them?
“The time to understand is before you are having a hair-on-fire emergency. New perspectives can impact both core business and corporate ESG priorities (Environmental, Social and Governance), which we've seen come up frequently.
On the core business side, a big driver of the hardening market in Property & Casualty lines is climate. Changing climate volatility is challenging legacy business models by making it harder to predict and model losses. This is a big deal for carriers who are getting disrupted by changing weather and climate. Traditionally, carriers have a limited set of tools (increasing prices, diminishing capacity) they can respond with. New perspectives like parametric products can help carriers stay in markets while controlling total exposures and having greater reserve certainty.
On the ESG side, what we've heard from our customers is a growing focus on sustainability. Insurance is a unique industry because there's multiple ways of integrating ESG considerations into business models. The first is impact investing -- how the carrier is investing their float – which has been around for a long time. The second is what we call impact insuring, which is how a carrier uses product development to accelerate ESG priorities, particularly around things like climate resiliency. We see parametric solutions especially useful in this second way, by delivering financial resilience to policyholders who are being disrupted by the climate. Those solutions can't work if they're not both profitable and sustainable. We see parametrics in a sweet spot where carriers earn a profitable premium, and they earn it by delivering financial resiliency to policyholders.”
In what way is Plover approaching parametrics differently from its competitors?
“The primary difference is around the business model. We are an SaaS (Software-as-a-Service) company, not an MGA . We saw this model as better aligning incentives. MGAs get paid when they write any premium, not necessarily profitable premium. This model creates risk and work for the carrier, as carriers need to monitor and enforce underwriting standards externally. With software, we can leverage existing in-house underwriting standards to sell enhancements through existing distribution networks.
Another big difference is that we are peril-agnostic. We are specialists in operationalizing data to meet business needs -- not in specific perils of climate models. We have deep experience operationalizing data from satellites, sensors, industrial IOT, etc. Being peril-agnostic lets us follow the commercial needs of our customers.
Finally, we think about risk at the program level, an approach that lets carriers quickly analyze risk transfer and reserve impacts on a program (and not individual product) basis. This lets us structure parametric enhancements across a whole program, as opposed to a single standalone product.”