Can parametric insurance solutions bridge the climate protection gap?
The world is grappling with the increasing frequency and severity of natural disasters fueled by climate change.
Homeowners in the United States are struggling with rising home insurance costs because of natural disasters. The gap in insurance coverage for homeowners in developing nations, however, is a glaring issue.
Relief efforts from organizations like the World Bank and the United Nations provide substantial aid. However, the process is often ad hoc, delayed, and entangled in political challenges.
The Centre for Disaster Protection suggests a revolutionary solution, called parametric insurance. It triggers automatic payouts based on pre-agreed conditions.
It offers a faster and potentially more cost-effective way to provide disaster relief. Traditional indemnity policies rely on post-disaster assessments.
The innovation is gaining traction. Payouts from parametric policies are witnessing a 15-fold increase from 2017 to 2021, reaching $1.9 billion.
How is parametric insurance reshaping climate resilience?
Parametric insurance is not just a theoretical concept. It has found real-world success in Morocco.
A devastating earthquake in Morocco prompted a $275 million parametric policy payout within three weeks.
While this covered only a fraction of the ultimate cost, it efficiently directed emergency response to the most vulnerable populations.
The appeal of parametric insurance lies in its speed. That makes it attractive to governments that need quick funds for disaster relief and insurers that grapple with mounting losses worldwide.
The concept is slowly permeating global climate diplomacy. Countries like Germany and the United Kingdom are earmarking foreign aid for disaster insurance premiums.
As the approach gains ground, it could complement traditional indemnity insurance. This is particularly the case for entities with large and complex insurance needs.
What is next for parametric insurance solutions?
Tanguy Touffut is CEO of Descartes Underwriting, a parametric insurance provider. He emphasizes that climate change creates enormous challenges for people, businesses and industries.
Descartes Underwriting employs over 100 experts, who are focused on understanding climate risks through advanced modeling and data-driven insights. They look at the intersection of physics, data, and insurance.
Touffut emphasizes the need for insurance to adapt to the evolving landscape. He cites a gap in understanding climate change.
Parametric solutions emerge as a game-changer. They are not only expediting claims payments, but also reducing loss-adjusting fees and offering transparent coverage.
For brokers facing challenges in a hardening market, parametric solutions provide innovative ways to meet client expectations while navigating the complexities of insurer demands.
As the industry grapples with growing protection gaps, companies like Descartes Underwriting aim to innovate.
They build resilience against climate and emerging risks and try to reinforce the blend of insurance expertise and tech DNA.