How parametric insurance combats climate risks – IB TV

Difference between parametric insurance and traditional insurance

“The way parametric contracts are defined [is that] they are based on a predefined event outcome, as opposed to traditional insurance, which is based on a post-loss outcome,” Qin said.

“You only contractually know the loss settlement amount under the traditional model, whereas a parametric contract is something where the event and the amount subject to that event have been predefined before the contract being set up.”

How parametric insurance builds resilience against climate risks

Qin said parametric insurance could help build resilience against extreme weather events by plugging in gaps that traditional insurance cannot fill.

“[Parametric insurance offerings] are highly tailored and highly flexible to what the insureds want,” he said.

“This is less about a broad brush in traditional insurance models, and if you’re in Cairns, Lismore, or along the Brisbane River, everyone insured is going to get charged this amount, whereas we are talking about specific premises, specific assets, and particular risk profile. And that creates a level of awareness and elevates them.”

Parametric insurance offerings for extreme weather events

Aside from parametric insurance for agriculture, there are now offerings for cyclones, bushfires, and floods.

“We’re starting to see a lot of [parametric insurance] for flood because there are too many events, and they’ve been in a spotlight, and I’m guessing reinsurance and treaties will cause a double whammy effect with insurers now,” Qin said.

“We’re starting to see why parametric insurance is becoming a good alternative for traditional covers.”

See more information about parametric insurance and how it can combat climate risks by watching the IB TV episode: “Can parametric insurance combat climate risks?”