Cloud Outage is the next risk class primed for ILS risk transfer

ILS instruments to cover a catastrophic cloud outage present a lowcorrelation, diversifying, and highly attractive insurancelinked investment opportunity, according to the MGA.

NEW YORK February 16, 2023 Parametrix, the leading provider of cloud downtime insurance, is working to bring to market InsuranceLinked 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 “CloudinaBox” 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 predefined cloud service region, according to CloudinaBox: 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, cofounder 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 peakrisk 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 welldefined trigger mechanism, shorttail, and a very limited risk of trapped capital or loss inflation.”
The global cloud computing market, defined by the amount spent on public cloudbased 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.
The complete report is available for download here.
About Parametrix

Parametrix is a pioneer in the monitoring and modeling of cloud providers and cloudbased services. Our platform automates risk assessment, pricing, and modeling of these sophisticated platforms. Parametrix continuously monitors a variety of thirdparty IT services across the globe to collect granular data on service interruptions. We generate realtime 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 ecommerce platforms, backed by major Arated global insurers. Parametrix operates from offices in New York, Tel Aviv, London, and Munich.

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