Using financial derivatives is also an option for risk transfer.
In cases where adequate risk transfer through insurance cannot be secured (due to limitations in underwriting capacity) or where risk transfer itself is impossible (no underwriter exists), the use of Alternative Risk Transfer (ART) methods may be effective. A typical example of ART is financial derivatives, but our company can only handle insurance derivatives called parametric insurance.
Both can be used to transfer the risk of natural disasters such as typhoons and earthquakes, but the system works by paying a certain amount when values such as wind speed or seismic intensity exceed the values measured by public institutions (triggering the event), which means that there are cases where compensation is not paid even if actual damage occurs at the business premises. On the other hand, if the trigger is activated, there are cases where compensation exceeding the actual damage can be received. Also, while general property insurance takes a considerable amount of time for the insurance claim to be approved, ART is characterized by its rapid payment of compensation.
Based on natural disaster risk modeling, we can verify the amount of risk to be covered by ART and the trigger settings, depending on the specific risks involved. Furthermore, if a portion of the risk can be insured, we will propose the optimal combination of property and casualty insurance and ART.