Can parametric insurance change the game in climate disasters?
What’s the context?
Insurance that pays out pre-set sums instead of indemnifying losses is becoming more common as floods and hurricanes intensify
- Parametric models pay out when pre-set markers are hit
- Can deliver faster disaster aid than traditional insurance
- Industry experiments with new models for climate losses
As climate-fueled disasters become more frequent and intense, companies, countries and aid workers are experimenting with new models of insurance and financial help to manage growing risks and losses - among them, parametric insurance.
[...]
What are the benefits compared to traditional insurance?
In more traditional indemnity insurance models, people affected by disasters put in a claim when they suffer a loss and then wait for it to be assessed and paid - a process that can drag on and slow recovery efforts.
[...]
What are the downsides?
While people with parametric insurance can receive faster payouts, they can miss out on compensation if losses occur when the predetermined criteria are not reached.
[...]
How widely is parametric insurance used?
Parametric insurance has been used around the world for years, from protecting crops in Africa to property in the hurricane-prone Caribbean.
Since 2007, the Caribbean Catastrophe Risk Insurance Facility, now known as CCRIF SPC, has paid out more than $240 million to help countries recover from disasters caused by earthquakes, tropical storms and heavy rainfall.
[...]