Parametric Insurance Explainer

How This Alternative Coverage Model Can Help Insurers Defend Their Profits in the Face of Climate Crisis

Report by Maria Elm  | Nov 12, 2024
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Executive Summary
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Table of Contents
Executive Summary
The climate crisis is exposing the limits of traditional indemnity insurance
Parametric insurance can help insurers navigate the changing risk environment
Insurers can tap into an emerging parametric insurance ecosystem
What’s next in the parametric insurance space?
Sources
Media Gallery
About This Report
Traditional indemnity insurance isn’t keeping pace with climate change fallout, forcing P&C insurers to withdraw coverage from affected areas. Data-driven parametric insurance can help them plug coverage gaps and defend profits.
Topics
Financial Services
Insurance
US
Table of Contents
Executive Summary
The climate crisis is exposing the limits of traditional indemnity insurance
Parametric insurance can help insurers navigate the changing risk environment
Insurers can tap into an emerging parametric insurance ecosystem
What’s next in the parametric insurance space?
Sources
Media Gallery

This year’s devastating US hurricane season has put insurers’ climate change-related woes into the spotlight. Parametric insurance could help them more profitably cover risky areas by minimizing risks and pricing products with greater accuracy.

Key Question: How can parametric insurance help property and casualty (P&C) insurers protect their business continuity as climate-related risks intensify?

The Frequency of Natural Disasters Has Tripled in the US Since 2003 (% change in frequency of US climate disasters, by type, 2003 vs. 2023)
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Key Stat: The frequency of natural disasters in the US increased by 319% between 2003 and 2023, per the National Centers for Environmental Information (NCEI). The costs and losses associated with such events pose an existential threat to most P&C insurance lines.

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Table of Contents

  1. Executive Summary
  2. The climate crisis is exposing the limits of traditional indemnity insurance
  3. Parametric insurance can help insurers navigate the changing risk environment
  1. Insurers can tap into an emerging parametric insurance ecosystem
  2. What’s next in the parametric insurance space?
  3. Sources
  1. Media Gallery

Charts in This Report

The Frequency of Natural Disasters Has Tripled in the US Since 2003 (% change in frequency of US climate disasters, by type, 2003 vs. 2023)Florida and California Have Been Hit Hard by Rising Home Insurance Costs and Coverage Changes (% of homeowners in California, Florida, and the US overall, Feb 2024)
Florida Homeowners Face a Higher-Than-Average Chance of Being Dropped by Insurers (% of US homeowners whose insurance coverage/prices changed, by state, Feb 2024)Parametric vs. Traditional Indemnity Insurance
How Does Parametric Insurance Work?Global IoT Connections Will Grow Steadily to Approach 40 Billion by 2033 (billions of internet of things (IoT) connections worldwide, 2023-2033)
A Lack of Data and Accurate Models Is Seen as the Top Barrier to Adopting Parametric Insurance (% of internet users worldwide, Aug 2024)US Financial Losses Due to Cybercrime Ballooned to $12.5 Billion in 2023 (billions in US losses from reported cybercrimes, 2019-2023)

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authors

Maria Elm

Contributors

Lauren Ashcraft
Suzy Davidkhanian
VP, Content
Vladimir de Leon
Chart Editor
Tiffani Montez
Emma Noyes
Graphic Designer, Data Visualization
Amy Rotondo
Director, US Research
Sakina Thanawala
Copy Editor
Emman Velasco
Chart Editor
Julia Woolever