For high-risk industries, including construction, mining, renewables, energy, oil and gas, weather related events, supply chain disruption or commodity price fluctuations can greatly impact operations and revenue.
In addition, underwriters are seeing challenges caused by climate change, capacity constraints and pricing pressure for many lines of insurance. This can lead to concerns around premiums or coverage, and a reduction in appetite for lenders, investors and even for the companies themselves.
According to Aon’s Weather, Climate and Catastrophe Insight report 2022, Australia saw a total of at least $6.95 billion of industry reported losses.
Aon’s Weather, Climate and Catastrophe Report 2022 APAC found economic losses in the APAC region in 2022 reached USD 80 billion
- Roughly a third of the APAC losses were related to catastrophes in Australia.
- Furthermore, the substantial protection gap of 86 per cent meant many disaster losses were uninsured.
One way of mitigating some of the market pressures and risk exposures can be via Parametric Insurance.
Parametric Insurance utilises data from a variety of sources such as the Bureau of Meteorology, industry models and hardware that is installed at site to physically monitor weather events and their severity.
When traditional insurance cannot provide full coverage for natural catastrophe perils, this can often leave projects underinsured and in breach of arrangements with third parties such as key project lenders.
As the frequency and severity of weather events continues to increase, Parametric Insurance can be used to cover damage or business interruption not only at site, but also through the supply chain where weather events can interrupt aspects such as logistics and transport.
Cash flow and capital
As Parametric Insurance can be combined with traditional insurance solutions, it can help to lower the total cost of risk by allowing an organisation to proactively increase its program retention and use the associated premium savings to fund a portion of a parametric solution. By integrating the parametric solution, businesses can potentially free up capital by carrying less non-traditional risk.