The Bermuda Monetary Authority plans to introduce a parametric special purpose insurance class to help address uninsured losses.

“This new class will offer a dedicated framework tailored for Bermuda alternative capital (re)insurers that plan to adopt parametric business models,” it said.

The regulator hopes to make the required legal changes by the end of June.

Parametric solutions will address a growing protection gap linked to climate-related and emerging risks that are not adequately covered, a BMA consultation paper says.  

The scale and frequency of natural catastrophe risks are evolving due to factors including climate change, it says, and the protection gap is growing, with the financial impact on policyholders intensifying. 

Emerging risks such as cyber are compounding the problem.  

“The authority ... views the parametric market as a supplemental product for the indemnity market. It is clear that parametric coverage can help safeguard policyholders in an intensifying risk landscape,” the BMA said.  

Parametric cover, when structured in a “prudent and pragmatic manner”, can offer protection where traditional indemnity covers do not address policyholder needs, the paper says.  

It often offers accelerated payouts and coverage of non-physical damage.

“The intention is for the new PSPI licence to allow parametric covers within a fully collateralised framework,” the authority said.