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Parametrics

As organizations face a rapidly changing risk landscape, industry trends and factors are driving an increasing need for parametric solutions.

Empower your organisation with parametric solutions

There are several key factors contributing to this rising demand:

  • Climate change and extreme weather events: With the increasing frequency and severity of natural disasters, traditional insurance may fall short in adequately protecting organisations from natural catastrophe (Nat Cat) related losses. Parametric solutions offer an innovative approach by linking coverage directly to predefined triggers, such as wind speed or rainfall levels, ensuring certainty and efficiency of payouts when specific conditions are met.
  • Supply chain disruptions: In an interconnected global economy, disruptions to supply chains can have far-reaching consequences. Parametric solutions enables organisations to protect against revenue losses resulting from supply chain disruptions caused by events like natural disasters, weather perils, political instability, or cyberattacks.
  • Emerging risks and uncertainties: Rapid technological advancements, geopolitical shifts and regulatory changes introduce new risks and uncertainties. Parametric solutions provides organisations with flexible coverage that can be tailored to address emerging risks, ensuring proactive risk management and financial resilience.

What is parametric insurance?

Parametric insurance products – also referred to as event or index-based solutions, are custom-built alternative risk solutions to cover a predefined event that could pose a threat to businesses or communities. They are bespoke solutions provided by insurance and reinsurance companies that enable organisations to finance or to transfer risk in a non-traditional way. The solutions revolve around a measurable index and are based on predefined triggers or pay out mechanisms, without necessarily needing physical damage to occur. Parametric insurance can pay out a pre-agreed sum or percentage of coverage when specific trigger conditions are met.

What are the benefits of parametric solutions?

Parametric solutions help to provide financial certainty so that organisations and councils can focus on running their core business operations. Parametric solutions can unlock a range of benefits such as fast claims settlements, enabling insureds to recover quickly from covered events and maintain uninterrupted operations. 

Customised coverage to address specific risks and exposures can ensure comprehensive protection to meet an organisation’s unique needs. Parametric solutions can bridge coverage gaps and minimise potential losses. They help to strengthen an organisation's resilience by removing financial uncertainties to allow for accurate forecasting and better financial planning.

How Marsh can help

The Marsh Advisory Alternative Risk team can help your organisation navigate parametric solutions and create a program that aligns with your strategic and financial goals. By combining our expertise with industry-leading analytics, we can help you navigate your risks, assess your needs and design bespoke solutions to match your unique risk profile.

To take control of your organisation's risk management strategy and stay ahead, please reach out to your Marsh representative or speak to one of our parametric solution specialists at Marsh Advisory.

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FAQs

These solutions are suitable for a wide range of businesses, organisations and communities that are subject to losses from a variety events (mostly NatCat). Among other benefits, parametric solutions may: 

  • Protect businesses/communities against indirect economic loss, without the requirement of physical damage to assets. 
  • Provide an alternative to supplement traditional property and business interruption insurance with cover and capacity not otherwise available.
  • Typically cover underinsured or uninsurable risks.

Parametric insurance is a streamlined risk management solution that prioritises speed and efficiency. Instead of dealing with complex claims assessments, which could take months or even years, the predefined trigger mechanism under a parametric insurance policy allows for swift claims settlement and recovery, which minimises disruptions to business operations.

A: traditional insurance is indemnity based, parametric is index based

A: parametric insurance contracts, if triggered, pay out claims quickly – within days or weeks.

A: No, parametric insurance is sometimes an alternative to secure cover that is not otherwise available anymore (for example flood capacity disappearing after the recent flood events). In many instances the blending of traditional and parametric insurance provides the best outcome for clients.

A: No, parametric insurance policies are becoming more widespread and are bought by businesses small and large or even individual property owners in areas prone to natural catastrophes (Cyclones, Earthquakes, Drought etc.).