Unlocking New Solutions: The Rise of Parametric Insurance

Unlocking New Solutions: The Rise of Parametric Insurance
Aon Insights Series Pacific

02 of 03

This insight is part 02 of 03 in this Collection.

November 8, 2023 2 mins

Unlocking New Solutions: The Rise of Parametric Insurance

Unlocking New Solutions: The Rise of Parametric Insurance

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.

69% of economic loss in natural catastrophe events is not covered by traditional insurance.1 This means that in a catastrophic event, over half of the loss corporates and public entities experience is retained rather than transferred.

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.

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.

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
[email protected]

Tracy Riddell, Head of Product Delivery, Aon
[email protected]

1 Climate and Catastrophe Insight

© 2024 Aon Risk Services Australia Limited ABN 17 000 434 720 | AFSL 241141 (Aon).

The information contained in this communication is general in nature and should not be relied on as advice (personal or otherwise) because your personal needs, objectives and financial situation have not been considered. Before deciding whether a particular product is right for you, please consider your personal circumstances, as well as the relevant Product Disclosure Statement (if applicable), Target Market Determination and full policy terms and conditions available from Aon on request. All representations in this communication in relation to the insurance products Aon arranges are subject to full terms and conditions of the relevant policy. Please contact Aon if you have any queries.

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