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.
“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.
Parametrix is a pioneer in the monitoring and modeling of cloud providers and cloud-based services. Our platform automates risk assessment, pricing, and modeling of these sophisticated platforms. Parametrix continuously monitors a variety of third-party IT services across the globe to collect granular data on service interruptions. We generate real-time alerts on outage events, and provide access to valuable data sets. As a Managing General Agent and Lloyd’s Coverholder, Parametrix underwrites parametric insurance against outages of the cloud, CDNs, or e-commerce platforms, backed by major A-rated global insurers. Parametrix operates from offices in New York, Tel Aviv, London, and Munich.