Parametric Insurance

Parametric Insurance

Learn how your organization can benefit from parametric insurance. 

What is Parametric Insurance?

Parametric insurance is a simple, straightforward and fast-paying risk transfer solution that is triggered by a specific, pre-defined event, providing clients with straightforward if-then coverage. If a specific pre-defined event occurs (such as a natural catastrophe or weather event), as determined by independent, third-party data sources, the insured then unlocks a highly flexible source of risk capital. The broad coverage and quick settlement mechanics (where payment is available within weeks of an event) can help clients mitigate uncertainty and provide access to liquidity to accelerate recovery after an event.

How Does Parametric Insurance Work?

Parametric insurance is a risk transfer instrument based on the growing amount of data available to describe risk events. It is particularly well-suited for natural catastrophes — but it can also be applied to other emerging risks where data is available.

Unlike traditional insurance, which would typically be triggered directly by losses associated with the risk event, parametric insurance is instead triggered by the data that describes the event. Given the real-time nature of data availability associated with these events, parametric insurance allows faster and more efficient payouts without the need for time-consuming and often subjective assessments. Additionally, parametric insurance can be customized to meet the needs of organizations, offering maximum flexibility as clients seek to enhance their resiliency.

What makes parametric insurance a compelling solution?

  • Independent

    Coverage activates when predefined event thresholds are triggered, such as proximity and intensity of a storm.

  • Fast

    Claim settlement is quicker and more transparent than traditional insurance because event occurrence is determined by an independent third party. Coverage is usually confirmed within days, with funds generally arriving within weeks.

  • Flexible

    Any covered economic loss ensuing from a triggering event is an indemnifiable expense under parametric insurance.

What Does Parametric Insurance Cover?

Parametric coverages are available for a large and growing list of perils. Example use cases include hurricanes and tropical cyclones; earthquakes; secondary perils such as severe convective storms, hail, tornado, flood, and wildfire; climate and weather perils such as extreme temperatures, excess rainfall or snow; as well as operational concerns such as river height. There are also applications for emerging perils such as non-physical damage, business interruption, cyber, cloud outages, supply chain issues, and risks associated with climate change and transition.

How Aon Can Help

At Aon, we can help you make better decisions to manage your catastrophe exposures with a proven methodology to understand your needs. Combined with an unparalleled depth of expertise, our insights allow clients to manage near term-volatility and build resiliency.

  • Advanced Modeling Capabilities

    We combine advanced modeling capabilities, clear market knowledge and a collaborative approach to help you make better risk decisions through parametric solutions.

  • Better Maintain Resiliency

    Working with Aon, you can better maintain resiliency in the face of increased natural catastrophes with innovative capital solutions like parametric to help you achieve fast access liquidity and broad coverage.

  • Faster Recovery

    The parametric solution’s unique claim settlement process enables a faster and more complete recovery following a triggering event.

  • Proven Process

    Our consultative process results in custom parametric and alternative risk solutions that offer enhanced protection against the increased frequency and severity of natural catastrophes.

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Current science predicts global temperatures will increase between around 1.5 and 3 degrees by 2050 and up to 6 degrees by 2100. 


Using Parametric Insurance to Match Capital to Climate Risk

Risk managers are rethinking their risk resilience by turning to parametric insurance, an “if-then” model designed to complement and supplement a traditional indemnity program and better match capital to the broad nature of risk caused by natural disasters.

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