The specialist Lloyd’s of London insurance and reinsurance marketplace has announced the launch of the first policy developed by Lloyd’s Product Innovation Facility, a parametric solution targeting the hotel industry.
The Lloyd’s Product Innovation Facility was launched in June of this year to accelerate the development of re/insurance solutions for new and emerging risks. It’s backed by a group of 24 Lloyd’s syndicates who have together committed more than £100 million of underwriting capacity.
The new hotel solution is led by Tokio Marine Kiln, with Facility members Chaucer, Munich Re Syndicate, Beazley, Faraday, and AXIS offering additional support.
The product leverages a parametric trigger structure to ensure rapid payout post-event, ultimately automatically indemnifying a customer if any unforeseen event results in a loss of profits.
The hotel solution offers protection against lost profits which could occur as a result of unexpected events impacting their market and which are out of the control of the hotel. This includes terrorist attacks, for example, which can result in less tourism and subsequently a loss of revenue for hotels.
Lloyd’s explains that the product defines an insured event as the difference between forecast and actual market trading data widely accepted by the hotel industry. This means that the need for named perils has been removed, which Lloyd’s says is an example of its creativity and flexibility.
Following an insured event, a pay-out is automatically triggered which protects the profitability of the hotel, which in turn can reduce volatility across the business.
Tom Hoad, Head of Innovation at Tokio Marine Kiln and Chair of the Product Innovation Facility, commented: “Hotel owners and operators know all too well how unexpected events can suddenly impact trading. This new product will provide much-needed peace of mind for them to remove some of the volatility that their industry can experience through issues over which they have absolutely no control.”
Chief Executive Officer (CEO) of Lloyd’s, John Neal, said: “Lloyd’s has a well-deserved reputation as the home of insurance innovation and I’m delighted to see the speed with which the new Product Innovation Facility, whose capacity has more than doubled in the past few months, is moving. Using the combined expertise, insights and entrepreneurial spirit of all those involved, we’re developing, incubating and launching exciting new products to meet the very real needs of today’s world.”
Marc Bentley from the InterContinental Hotel Groups, added: “It’s a credit to Tokio Marine Kiln, and the supporting members from the PIF, that new products are being developed to address specific risk financing challenges that are outside of traditional insurance products. In today’s competitive world the challenges we face are complicated and unique, and the agility of innovative risk financing solutions are key to support our business objectives.”
Used more widely in emerging countries, parametric trigger structures can be leveraged to increase insurance penetration for new and emerging risks, and importantly, indemnifies the customer soon after an event, which is vital to recovery.
A recent example can be seen with the Caribbean Catastrophe Risk Insurance Facility (CCRIF), which is set to payout $11 million to the Bahamas following the impact of Hurricane Dorian. The region’s tropical cyclone policy through the CCRIF utilises a parametric trigger, and as such the Bahamas received 50% of the payment before the typical 14 days.