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Case study

Addressing climate risks by integrating parametric solutions into captives

09/26/2025

With climate-related risks increasing in frequency and severity, a client in the Gulf of Mexico (GoM) with an existing captive insurer was experiencing rising property insurance pricing and retentions. Specialists from Marsh’s alternative risk practice, including the captive solutions practice and the parametric center of excellence closely collaborated to integrate a parametric insurance solution within the captive, enabling them to secure broader and more comprehensive coverage.

The challenge

As the captive owner’s windstorm exposure rose at its GoM assets, it faced increased insurance pricing and higher retentions. Like many captive owners in similar locations, the company found itself retaining more named wind storm (NWS) risk. To proactively manage this growing exposure, the company aimed to transfer risks beyond its appetite, while steering clear of traditional reinsurance — which could be expensive and limited in capacity.

The solution

Many captives are now turning to innovative alternative risk transfer solutions, such as parametric insurance, to safeguard their assets more effectively. Parametric solutions can be customized to align with the client’s risk management strategy — whether by covering specific risks within the captive that have become too costly, offering an alternative for clients seeking to increase their captive involvement by insuring certain natural catastrophe risks, or providing affordable options for risks that are difficult to insure through traditional insurance. Moreover, parametric insurance triggers pay out when predefined event criteria are met, such as wind speed at a specific location during a hurricane or the magnitude of an earthquake near the exposed asset. This allows for much faster payments compared to traditional claims processes, giving clients quick access to funds and enabling swift risk mitigation.

In this case, the client purchased parametric coverage to reduce the captive’s NWS self-retention. The parametric coverage was linked to specific wind speeds during named storms and their proximity to the company’s GoM assets.

The result

The parametric solution has been a key part of the client’s captive, with the client renewing their coverage each year since its inception. Beyond monitoring that parametric coverage remains aligned with the client’s evolving needs, the Marsh Parametric team maintains close communication, alerting them ahead of approaching storms. Although this client has been fortunate not to experience major storm losses leading to payouts since the policy’s inception, several other Marsh clients have benefited from parametric payouts. These payouts reached these clients within two to three weeks after the storm hit their exposure.

This client would have also received payouts for several past storms that did not activate their traditional coverage at the time. This parametric cover not only reduces a significant portion of the high self-retention within the captive but also expands the client’s overall coverage.

Captive Parametric Opportunities

Differing ways to improve risks

Plugging gaps

  • Parametric as an alternative to existing insurance
  • Underwriting risk that the external market overprices/doesn’t want
  • Classic captive territory but might require market assistance to price

Helping business units

  • Liquidity

Claim payments in the same accounting period as the loss

  • Breadth of cover

NDBI risks
Weather/Climate

  • New and Emerging risks financed

Incubation and a path to risk transfer

Innovative risk financing

  • Wrapping around existing insurance

Offer parametric but buy indemnity

  • Creating a diversified portfolio
  • Clever program design - retention adjustments, hedging strategy
  • Affinity programs – warranty, travel, etc., on parametric basis.

Conclusion

Parametric tools can address the risk transfer challenges that come with various climate-related risks, including tropical cyclones, floods, and wildfires, as well as natural and human-induced hazards like earthquakes and cyber risks. They can be integrated with captives in several ways, such as an excess layer above a captive layer, as risk transfer for high self-retentions, or as coverage for previously uninsured risks like drought affecting crop yields.

Parametric solutions can be a valuable addition to a company’s risk management strategy. By integrating parametric insurance, captives can diversify their risk transfer strategies and secure coverage for risks might be too costly or that are no longer covered by the traditional markets.