Parametric insurance is a type of insurance solution, which covers the likelihood that a preset event will occur rather than compensating for actual losses. Secondly, the definition of parametric insurance is an agreement to pay an amount in the case of a triggering event; as such, it is not connected to any actual physical asset or component of the infrastructure.
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If pre-defined event parameters measured by an objective variable or index linked to a specific exposure of an insured are met or exceeded, the insurance coverage is activated.
The purpose of parametric coverage is to speed up recovery rather than to replace traditional insurance. They can be created to cover both individual massive losses and frequency losses, such as the effects of reduced snowfall or economic interruptions brought on by hurricanes. To get the greatest outcomes, it is crucial to think about how standard indemnity plans might be combined with parametric alternatives.
In order to help businesses finance or manage risks in a non-traditional manner, reinsurance and insurance companies offer parametric covers, which are alternative risk solutions. The solutions are based on specified triggers or payment systems and revolve around a quantifiable index; no actual physical harm needs to be done for them to work. The demand for such cutting-edge parametric insurance systems has been rising as climate-related meteorological risks become more complicated and unpredictable.
COVID-19 Impact Analysis
The COVId-19 pandemic had a positive effect on the market for parametric insurance since it raised awareness and led to a growth in adoption by companies with a wider range of risk exposure. The necessity for new parametric financial products for both conventional and novel risks has been made clear by the pandemic problem. Even if their insurance policies included a business interruption clause, the majority of companies understood that it did not provide insurance protection against pandemics. The introduction of parametric insurance resulted from this. This further would fuel the market growth.
Market Growth Factor
Budget-Friendly Policy Costs and Expansive Policies for Clients
Due to the lower prices, parametric insurance is growing in popularity. Customers are drawn to parametric insurance because of its affordable premiums since they want to protect their property from unanticipated financial losses or damage. Additionally, it is tailored to a customer’s budget or bundled with indemnity insurance to close any gaps in coverage. Actual post-event costs are substantial and infrequently expected or budgeted, particularly for governmental institutions tasked with rebuilding a region after a tragedy. The insured may have more financial freedom with parametric insurance.
Ensured Insurance Payments at A Faster Pace
Policies with parametric insurance allow for speedy payouts. For firms to recuperate from a disastrous catastrophe, this may be essential. The insured also understands that this payment is guaranteed because it is based on specific, predetermined conditions. One more implication is that the compensation specified in the insurance will happen even if the insured suffers no harm at all or very little damage.
Market Restraining Factor
Uncertainty of Events and Loss Determination for Basis Risk
The basis risk is higher with parametric insurance because it bases risk determination on pre-established parameters. In insurance, the idea of risk premium is essential. Basis risk is the situation when an insurance policy does not cover a loss occurrence. Additionally, parametric insurance payments are frequently outlined using indices. As a result, there is a chance that someone covered by it could sustain a loss yet not be compensated since some requirements weren’t completed. It is plausible that the policyholder will not receive any compensation at all.
Based on type, the parametric insurance market is divided into natural catastrophes insurance, specialty insurance, and others. The specialty insurance segment procured a significant revenue share in the parametric insurance market in 2021. The advent of parametric insurance has grown beyond the natural calamities’ claim. One such specialty parametric is Hybrid coverage which requires that both an indemnity requirement (evidence of loss) and a parametric condition (pre-defined event parameters) be satisfied before the policy will pay out. These policies are set up like insurance contracts.
On the basis of industry vertical, the parametric insurance market is categorized into agriculture, aerospace & defense, mining, construction, energy & utilities, manufacturing, and others. The agriculture segment acquired the highest revenue share in the parametric insurance market in 2021. This is a result of new insurance legislation that helps close protection gaps by including circumstances that weren’t previously insurable. Agri-food systems must be robust worldwide due to the effects of climate change, and disaster preparedness is a crucial component of climate change adaptation. The use of parametric insurance is crucial in these efforts since it is closely related to societal disaster resilience.
Based on region, the parametric insurance market is analyzed across North America, Europe, Asia Pacific, and LAMEA. North America dominated the parametric insurance market with the highest revenue share in 2021. This is because of the size and intensity of weather-related climate events, which have been worse and more irregular in North America, driving up the demand for parametric coverings. Extreme weather events are becoming more often and more intense in communities all around the United States, and many of them are being made worse by climate change.
The major strategies followed by the market participants are Acquisition. Based on the Analysis presented in the Cardinal matrix; Berkshire Hathaway, Inc. is the major forerunners in the Parametric Insurance Market. Companies such as AXA SA, Chubb Limited and Zurich Insurance Group Ltd. are some of the key innovators in Parametric Insurance Market.
The market research report covers the analysis of key stake holders of the market. Key companies profiled in the report include Allianz Group, AXA SA, Zurich Insurance Group Ltd., Berkshire Hathaway, Inc., Chubb Limited, Munich Re Group, FloodFlash Limited, Neptune Flood Incorporated, Global Parametrics Limited and Swiss Re.
Recent Strategies deployed in Parametric Insurance Market
Partnerships, Collaborations and Agreements:
Jul-2022: Neptune Flood partnered with SIAA, America’s largest independent insurance agency alliance. This partnership allowed SIAA member agencies to access Neptune Flood through SIAA MarketFinder, SIAA’s online member-only portal for difficult-to-place and specialty risk markets. Additionally, Neptune would offer flood coverage with limits eight times the level of the NFIP and would provide multiple additional coverage options such as temporary living expenses, unattached structures, pool repair & refill, replacement cost on contents, and basement contents for homeowners, and business interruption coverage to help businesses recover from a flood event.
Jun-2022: Munich Re Group partnered with Cloud to Street (C2S), a climate adaptation technology company, and Raincoat, a parametric insurance provider. This partnership aimed at rolling out an at-scale insurance program. Also, this collaboration marked the first major success of a flood parametric program created for climate adaption and intended to eliminate a persistent global coverage gap.
May-2022: Neptune Flood collaborated with ICEYE, an international satellite imagery company providing earth observation data via the world’s largest synthetic-aperture radar (SAR) constellation. From this collaboration, Neptune would have access to high-resolution flood hazard data in the immediate aftermath of a flood event which would enable monitoring of Neptune’s insured geolocations for micro changes in water depths around properties.
Nov-2021: Munich Re formed a partnership with FloodFlash, a UK-based insurtech startup that offers parametric flood insurance. In this partnership, Munich Re focused on providing capacity for the principal business of the insurtech, which aimed to offer quick payout flood insurance to SMEs and landlords.
Mar-2021: Swiss Re came into partnership with ICEYE, the largest commercial synthetic-aperture radar (SAR) satellite operator and flood monitoring provider. For Swiss Re, this partnership has advanced flood risk management by enabling early warning systems, assisted disaster response, and speeded up claims payments globally by building on ICEYE’s innovative technology.
Sep-2020: AXA Climate partnered with SatSure, a deep tech startup working at the intersection of spacetech, Artificial Intelligence, and Software as a Service. Through this partnership, the companies launched parametric risk transfer solutions globally and aimed to advance clients’ climate resilience by providing them with precise parametric insurance and risk transfer solutions. In addition, SatSure would also leverage its machine learning and big data capabilities to offer rich risk assessment and analytics needed for the parametric solutions.
Sep-2020: Munich Re collaborated with Farmers Edge, a global leader in digital agriculture. From this collaboration, the companies paved the way for data-driven parametric weather insurance solutions.
Acquisition & Mergers:
Jul-2022: Chubb took over Cigna, an American multinational managed healthcare and insurance company. From this acquisition, Chubb acquired the life and non-life insurance companies that housed the personal accident, supplemental health, and life insurance business of Cigna in six Asia-Pacific markets.
Mar-2022: Berkshire Hathaway took over Alleghany Corporation, the owner of reinsurer TransRe. From this acquisition, Berkshire would be able to add more expertise and reach into global reinsurance markets and could even ramp up its reinsurance premiums even further. Both the companies mentioned that this deal provided a significant premium, delivering substantial and certain value for Alleghany stockholders.
Nov-2021: Allianz acquired Aviva Group, a British multinational insurance company. Through this acquisition, Allianz aimed to strengthen its position as a top leader by taking over the operations of Aviva in Poland and Lithuania. This move would expand Aviva’s life and non-life insurance operations as well as its pension and asset management businesses. Additionally, Allianz would jointly work with Aviva would enable them to leverage their broad talent pool, wide distribution network, diversified product offering, and increased scale. Together, they would continue to develop a unique and innovative value proposition for their customers.
Oct-2021: Neptune Flood acquired Jumpstart Insurance Solutions, the leading parametric insurtech. Through this acquisition, Neptune aimed at integrating parametric earthquakes into its portfolio of technology-based insurance products. It would also help the company in fulfilling its mission to use technology to change the way that consumers buy and agents sell insurance.
Jul-2021: Allianz Australia took over the general insurance business of Westpac, an Australian bank and financial services provider. Under this acquisition, Allianz would distribute general insurance products to Westpac customers for 20 years. Allianz also stated that this move would allow 350 Westpac general insurance employees to officially join Allianz. This would bring the company a suite of talents and industry knowledge that would help Allianz to continue to grow and innovate. Together, the companies would deliver customer-centric products and services.
May-2021: Allianz acquired Jubilee General Insurance Limited, the largest and the number one insurer in East Africa. From this acquisition, Allianz aimed to expand and broaden insurance markets across East Africa, leveraging Jubilee insurance’s deep regional knowledge, extensive networks, and brand reputation. This acquisition made Jubilee General Insurance Limited in Kenya operate as Jubilee Allianz General Insurance Limited, a company of the Allianz Group, and upon completion of corporate filings.
Product Launches and Product Expansion:
Jan-2022: AXA Climate expanded its parametric hail protection product range with the help of CoreLogic. The product would utilize CoreLogic’s proprietary data to help businesses recover from financial losses such as property damage or business interruption following a hail event. Additionally, AXA Climate would work with CoreLogic, which would allow them to streamline their user experience and reduce any potential basis risk in their parametric offers.
Aug-2021: Swiss Re expanded STORM, its parametric windstorm solution by teaming up with Reask, a tropical cyclone risk analytics firm. This expansion has eased the insurance process for organizations around the world by giving them access to broader coverage, flexible use of funds, and a speedier recovery with STORM.
May-2021: Chubb unveiled Benchmarq Package, a new insurance product. This insurance product is made for the lower middle market segment thus setting the standard for package policies focused on broader and more scalable coverage and efficiency. It also includes an expanded base coverage offering in both property and liability, resulting in insurance protection that is more inclusive than the typical industry package policies.
Jan-2021: Zurich North America introduced construction weather parametric policy, a weather parametric insurance product. This insurance product covers weather-related construction delays which are not covered by traditional builders’ risk insurance policies. Traditional builders risk policies offer protection for financial loss related to weather events, but only when those events cause physical loss or damage to a product.
Scope of the Study
Market Segments covered in the Report:
• Natural Catastrophes Insurance
• Specialty Insurance
• Aerospace & Defense
• Energy & Utilities
• North America
o Rest of North America
o Rest of Europe
• Asia Pacific
o South Korea
o Rest of Asia Pacific
o Saudi Arabia
o South Africa
o Rest of LAMEA
• Allianz Group
• AXA SA
• Zurich Insurance Group Ltd.
• Berkshire Hathaway, Inc.
• Chubb Limited
• Munich Re Group
• FloodFlash Limited
• Neptune Flood Incorporated
• Global Parametrics Limited
• Swiss Re.
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