Unlocking New Solutions: The Rise of Parametric Insurance
Snapshot
- As the risk transfer landscape continues to increase in complexity and insurance market dynamics evolve, organisations must maintain a robust and resilient risk management strategy.
- Risk managers can rethink risk resilience by considering parametric insurance, an “if-then” model designed to complement and supplement a traditional insurance program and better match capital to a large and growing list of perils.
Parametric insurance is an innovative risk transfer instrument that could help to reduce the protection gap by covering traditionally uninsurable exposures. It is particularly well-suited for natural catastrophe exposures, but it may also be applied to other emerging perils such as cyber, pandemics, cloud outages, and supply chain issues.
Triggered by a specific, pre-defined event, parametric insurance may provide straightforward if-then coverage. If a specific pre-defined event occurs as determined by independent, third-party data sources, the insured may then be able to unlock a highly flexible source of risk capital. The broad coverage and quick settlement mechanics can help organisations mitigate uncertainty and provide access to liquidity to accelerate recovery after an event.
Parametric insurance can also dovetail traditional insurance solutions and lower the total cost of risk by allowing an organisation to increase its program retention and fund a portion of a parametric solution with the associated premium savings. Integrating a parametric solution can free up capital by carrying less non-traditional risk.
A confluence of factors is making parametric insurance more attractive including the continually expanding protection gap, volatility of the property market, and the growing availability and reliability of data.
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At the recent Aon Insights Series Pacific 2024, our masterclass Unlocking New Solutions: The Rise of Parametric Insurance covered parametric basics, market trends and challenges, how parametric solutions can reduce the protection gap, new technology and outlook, and several case examples. Click here to view the presentation slides.
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Talk With Us
If you would like to discuss if parametric coverage is right for your organisation, please reach out to our team:
Kirstin McMullan, Principal Risk Consultant, Aon
kirstin.mcmullan@aon.com
Tracy Riddell, Head of Product Delivery, Aon
tracy.riddell@aon.com
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