Parametric Insurance

As the environmental impact from climate change worsens, so do the negative impacts associated with weather and climate risk. Delays due to business interruption can have a heavy impact on the cost of projects, such as property or equipment damage, reduction in outputs for energy and power companies and supply chain disruption.

Now more than ever, there is a need for risk management solutions which look to address the protection gaps within traditional insurance policies. As the world begins to evolve, so do our policies and risk transfer solutions.

Parametric Insurance policies are an increasingly popular risk management solution which allow for risks to be transferred or financed in non-traditional ways. These insurance solutions may offer alternatives to funding losses that are not possible with traditional insurance products.

The concept of Parametric Insurance is that instead of traditionally indemnifying for the actual loss incurred, this policy covers the probability of a predefined event happening, such as severe weather or natural catastrophe, and pays out according to a predefined scheme.

Events may refer to an index-based trigger such as a specific level of rainfall or wind, or an event within a defined area.

Parametric insurance is not a matter of if, but when

The “if:” Parametric is differentiated by its coverage trigger and pre-agreed payouts. Underwriting is simplified as coverage is triggered by the occurrence of an independent event as determined by neutral third-party data providers.
The “when:” With the independent data trigger and pre-agreed amounts, recoveries occur quickly — often as soon as 10 days after an event. This is critical for businesses that need quick access to capital following an event.

Closing the gap with Parametric Insurance

Thanks to these mega data analyses, any economic exposure arising out of an event can be insured. As a result, uninsurable exposures become insurable, and the parametric trigger provides the “missing link” to unlock contingent capital.

Want to learn more about parametric insurance?

Aon can assist in advising clients to determine how to get the best outcome from their parametric solutions.

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(Aon) Aon has taken care in the production of content on this website. Aon does not make any representation as to the accuracy of information received from third parties and is unable to accept liability for any loss incurred by anyone who relies on it. The information contained herein is intended to provide general insurance related information only. It is not intended to be comprehensive, nor should it under any circumstances, be construed as constituting legal or professional advice. You should seek independent legal or other professional advice before acting or relying on the content of this information.