Cloud Outage is the next risk class primed for ILS risk transfer
ILS instruments to cover a catastrophic cloud outage present a low-correlation, diversifying, and highly attractive insurance-linked investment opportunity, according to the MGA Parametrix Solutions, Inc.
NEW YORK — February 16, 2023 — Parametrix, the leading provider of cloud downtime insurance, is working to bring to market Insurance-Linked Securities (ILS) transactions which would protect ceding re/insurers against a major sustained outage of “the cloud,” to which many re/insurers are exposed through their cyber portfolios.
A “Cloud-in-a-Box” transaction would employ a concrete, predetermined, and easily observed parametric trigger to transfer the outage of specific cloud service or groups of services (such as storage) provided by a specific vendor (such as Amazon Web Services) in a pre-defined cloud service region, according to Cloud-in-a-Box: Securitizing Cloud Outage Risk, a new white paper published today by Parametrix.
Revolutionizing the way (re)insurance risk is transferred
“Significant accumulation of cloud outage risk is already on the books of many insurers and reinsurers. cyber insurance would become a much more attractive class of business if this potentially catastrophic accumulation risk were better managed,” said Yonatan Hatzor, co-founder and CEO of Parametrix. “We can do that through ILS structures.”
Dr. Rom Aviv of RHA Advisory, a senior advisor to Parametrix, said: “The structure will follow either the cloud downtime exposures within cedants’ underlying portfolios, or will refer to a peak-risk region which could lead to a significant loss. Correlation between cloud outages and the broader economy is low, so cloud downtime risk is potentially diversifying for investors. It features a well-defined trigger mechanism, short-tail, and a very limited risk of trapped capital or loss inflation.”
The global cloud computing market, defined by the amount spent on public cloud-based services, was an estimated $545.8 billion in 2022, according to one study, which projects growth to $1,240.9 billion by 2027. According to another, more than 90% of organizations use the cloud. “All indications show that this risk is not going to disappear. On the contrary. As such, we see the development of these ILS instruments as a vital element to support this growth,” concluded Hatzor.
About Parametrix
Parametrix, the leading provider of cloud monitoring, modeling, and insurance services, is a Managing General Agent and Lloyd’s Coverholder based out of New York that underwrites parametric insurance against digital supply chain interruption. Parametrix uses proprietary technology to continuously monitor the performance of a variety of third-party IT services across the globe, and to collect granular data on service interruptions. It uses that data to assess risk, provide instant insurance quotations, and to streamline claims payments, which are delivered within days. Parametrix policies are backed by major A-rated global insurers.
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