Bounce Insurance, the only earthquake parametric insurance provider in New Zealand, has gained a sense of affirmation after managing director Paul Barton (pictured) analysed the recent quake under Lake Taupō. Insurance Business sat down with Barton to get the lowdown on what the event meant not just for his unique proposition but also the broader industry.
According to GeoNet, it was at 11:47pm on November 30 that a magnitude 5.6 earthquake was felt throughout the Waikato and the central North Island, with the main shock under the lake being 9km deep. It was noted that the quake, which featured more than 180 aftershocks, was the largest in the region since 2019.
“The quake was certainly large enough for me to grab a midnight coffee and review the GeoNet measures,” shared Barton, whose offering became available 20 months ago. “Given the size of the shake, I was thinking that this could be our first quake event where customers are eligible for a payment, so I was keen to get that process operational and payments made if the policy had been triggered.”
Being a parametric policy, Bounce’s “shake and pay” insurance product is dependent on a pre-set trigger; in this case, a shake intensity measure of at least 20cm per second. That means the policy is triggered by the underlying ground movement (reported by GeoNet strong motion sensors) and is not based on any subsequent damage or loss. In fact, a shake intensity measure of 30cm per second will result in a full payout.
So, would a Bounce policy have paid out following the Lake Taupō quake? No, as the recorded ground movement was 17cm per second, or just 3cm shy of the minimum trigger.
“It was close, but not quite strong enough to trigger a payment under our insurance policy,” said Barton. The near-call, however, has relevant implications.
“My thoughts on this, is that our metrics are spot on, in the sense that 20cm is a proxy for the damage that we expect to be incurred after an earthquake,” Barton told Insurance Business. “The fact that we had 17cm movement in Taupō, where there was not a great deal of damage incurred by homeowners and businesses in terms of structural damage, suggests to me that we’ve got our metrics right.
“The idea is that the policy does respond to some form of impact and damage, so I think our trigger threshold of 20cm per second is about right in terms of when the policy gets triggered. It actually made me even more comfortable with [the trigger].”
The Lloyd’s coverholder boss, who is engaging with insurance brokers around the country, added: “Our job is to provide really quick cash flow after an event, so cash flow in a crisis. Our aim is to build resilience in the initial days of an event.”
In the UK, parametric insurance is already demonstrating the power of predetermined triggers and automatic payments. Last month in Stamford, FloodFlash beat its own compensation record, paying out less than four hours after the client’s chosen trigger depth was met.
For the Kiwi market, Barton believes this might also be what the future holds.
“I think parametric insurance in New Zealand will become quite a good alternative in what I see is a hardening insurance market for earthquake / natural disaster risk,” he declared.
“Policy premiums are becoming quite expensive, and in some cases possibly unaffordable for some homeowners and businesses, and I think parametric introduces an affordable alternative to cover those risks in a slightly different way than what they would have done beforehand. I’m optimistic about where the industry is going to go with a product like this.”
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