Swiss Re has signed an agreement with the Alabama State Insurance Fund (SIF), to provide a three-year parametric insurance cover for the SIF’s primary catastrophic hurricane exposure.
According to Swiss Re, parametric solutions compensate the buyer based on the physical characteristics of a disaster. The payment can be used for any purpose, including emergency response costs, replacing lost tax revenue and funding of increased insurance costs.
This agreement marks the first time a US state government has utilized such an solution to transfer its financial exposure from natural catastrophes to the private sector.
Raj Singh, member of executive committee and chief risk officer at Swiss Re, said: We are pleased to work with Alabama’s State Insurance Fund to help them with their risk management needs through this first-of-its-kind program. Until now, governments, and ultimately taxpayers, have been left shouldering the burden of paying for emergency expenses and reconstruction well after the disaster has passed.
“In other countries, we have worked successfully with government bodies to address this exposure. These innovative solutions are applicable to governments of all sizes and can be applied to US states who have an economic exposure to catastrophes – whether they be hurricanes, wildfires, or earthquakes among others.”
Ben Spillers, risk manager of Alabama Department of Finance, said: “This transaction marks a milestone for the State of Alabama in identifying and managing key risks. Based simply on the wind speed of a hurricane, we can now receive funds rapidly to cover our immediate costs. Our responsibility to protect the citizens of Alabama led us to work with an industry leader like Swiss Re, who has significant experience working with government entities.”