Parametric insurance can help close US $1.8tn protection gap: Generali and UNDP
A joint report published by insurance giant Generali and the United Nations Development Programme (UNDP) highlights parametric risk transfer and insurance as a key solution that can help to close the US $1.8 trillion protection gap.
“Parametric insurance is speeding up recovery from climate-related hazards and other shock events, especially for communities in vulnerable contexts,” the pair explain.
Adding that case studies show how parametric insurance can contribute to improved financial resilience for households, businesses and global value chains.
Parametric and index-insurance products are seen as viable ways to enable governments, businesses and communities around the world to financially prepare better for what are seen as increasingly frequent and severe natural hazards, ranging from drought, extreme heat and tropical cyclones to storm surges, earthquakes and other shocks.
As parametric policies can provide pre-agreed payouts that are based on independently verified triggers, typically based on the parameters of a weather, climate or catastrophe event instead of assessed losses, it can drive faster payouts and therefore fund a faster recovery from impacts and losses.
Parametrics are seen as a “complementary risk transfer mechanism to fill gaps left by traditional indemnity-based insurance.”
Christian Kanu, CEO of Generali Global Corporate & Commercial (GC&C) commented, “This report demonstrates our commitment to addressing the protection gap by offering innovative insurance solutions that can strengthen the resilience of underinsured communities in many regions of the world. Parametric insurance can be transformative, providing cost-effective, efficient risk coverage to those previously unreachable by traditional insurance. Consequentially, this helps communities and businesses cope with natural hazards and operational interruptions. At Generali GC&C, we are proud to be the Group’s center of excellence for parametric insurance, and we will continue striving to be Lifetime Partners for our clients.”
Jan Kellett, Global and Corporate Lead on Insurance and Risk Finance at UNDP, added, “Of critical importance to this work is the role of government. Our joint UNDP-Generali report makes one thing clear – the insurance industry cannot scale parametric solutions to build financial resilience without the appropriate ecosystem. Development actors must significantly increase efforts to establish supportive regulations and policies that allow parametric insurance to contribute meaningfully to closing the financial protection gap.”
Generali’s partnership with the UNDP has “an ongoing commitment to scale financial protection by fostering wider public-private collaboration,” the pair explain.
The ultimate goal is to help “create the kind of ecosystem necessary to support the growth of parametric insurance as a tool to protect vulnerable communities.”
Previously, the two entities had announced a partnership focused on the creation of digitally enabled parametric insurance solutions.
