A customer-friendly earthquake solution

A European utility company approached Swiss Re Corporate Solutions during a time of change in its industry. The company was concerned about losing customers to its competitors after the deregulation of the energy market and wanted Swiss Re Corporate Solutions to help develop a loyalty programme to retain existing customers and attract new business.

Following an initial period of discussion it became apparent that earthquake risk was the primary concern of the insured and its customers. Operating in a country that is highly exposed to earthquake risk but where take-up of residential earthquake insurance is low, it was clear there was an opportunity here to come up with a unique solution, explains Marc Covarrubias, head of strategic account management, EMEA at Swiss Re Corporate Solutions.

“The client wanted to be seen as a more customer-friendly company,” he explains. “So they asked us to develop a solution around an earthquake peril. It was a strategic direction for the client and had nothing to do with a typical conversation about a property or casualty renewal. We had to go in and ask a completely different set of questions. It went beyond a risk management conversation and involved people within the company who are responsible for marketing, customer acquisition and retention.”

The scheme was designed as a parametric solution with two separate triggers. “First of all the parametric (ground shake) threshold needs to be met and second of all the client needs to notify us that there’s actually been a loss, which arises due to the fact that a certain number of clients have been unable to pay their bill in this particular month.”

Parametric solutions have the advantage of clarity and neutrality. If the pre-set conditions of the double trigger are met, the insurance pays out, helping the client to manage its earnings volatility and fostering customer loyalty at the same time. “If clients are unable to pay their bill following an earthquake it is covered by the scheme, which is bundled in as part of the client’s contract with the utility company,” says Covarrubias.

“It is an earnings protection product,” he adds. “It’s about retaining customers that the company has fought so hard to win and maintain by offering them a value add in a country that is affected by earthquakes and where people typically don’t buy earthquake insurance.”