Cloud-in-a-Box: A Win-Win Solution for ILS

Parametric risk transfer solutions can address growing systemic risk and demand for cloud outage coverage in the insurance industry.

Parametrix has developed technologies which identify and measure major cloud suppliers’ downtime incidents with precision in real time.

Like any digital tool, the cloud sometimes fails. When it does, the businesses that rely on the cloud face significant interruption or come to a halt. The actual cost of such “cloud downtime” to individual businesses - including intangible losses - is increasing dramatically as more and more mission-critical systems migrate to the cloud.

Many current cyber insurance policies provide some protection to this growing risk under their Business Interruption (BI) coverage, which sometimes covers interruptions to third-party systems including cloud service providers. Concentration of the cloud services market among three major providers creates a significant accumulation and systemic risk which require dedicated attention.

Monitoring of cloud performance by Parametrix has enabled data collection to inform probabilistic risk modeling of major outage events, which in turn allows parametric risk transfer of cloud outage risk. Parametric cloud outage risk transfer products pay out when specific cloud services are disrupted for periods exceeding specified threshold. These tools provide re/insurers with a reliable, transparent way to transfer outage risk either through traditional risk transfer, or as securitized risk through ILS structures.

As direct and indirect demand for cloud outage coverage exceeds insurance industry capacity supply, this dramatic gap in cyber risk transfer capacity could be narrowed through ILS structures. Such structures offer a low-correlation, diversifying, and highly attractive insurance-linked investment opportunity.

Cloud-in-a-Box transactions open a new class of business to ILS investors, and a path to new capital and growth for re/insurers.

Parametrix uses its proprietary technology both to analyze and constantly monitor cloud availability and performance, collect data and model outage risk. Data is collected for analysis and modeling of cloud outage risk. The probabilistic model offers a granular perspective addressing specific cloud vendors, regions, and services. The technology provides access to real-time monitoring of market-leading cloud services worldwide and enables structuring  objective and transparent cloud-outage-risk hedging instruments. 


This post is the first in a series of posts introducing "Cloud-in-a-Box",  risk-transfer mechanisms to hedge against specified cloud outages. In April 2024 Parametrix, in collaboration with Hannover Re, structured the first-ever parametric cloud outage bond "Cumulus Re", marking a significant milestone in addressing systemic cloud risks and the rising demand for reinsurance coverage.

Next time: Cloud-in-a-Box: The Cloud Economy

The Parametrix Team
View Profile
June 3, 2024