As per the current market research conducted by CMI Team, the global Parametric Insurance Market size is expected to record a CAGR of 12.1% from 2023 to 2032. In 2022, the market size is projected to reach a valuation of USD 15.2 billion. By 2032, the valuation is anticipated to reach USD 35.6 billion.
Parametric Insurance Market: Growth Factors and Dynamics
- Increasing Demand for Risk Transfer: Parametric insurance offers a unique solution for transferring risks associated with specific events, such as natural disasters, weather-related incidents, or market fluctuations. With the rise in extreme weather events and other catastrophic occurrences, businesses and individuals are seeking innovative risk management tools. Parametric insurance provides a straightforward mechanism to transfer these risks and receive quick payouts, enabling better financial planning and protection.
- Advancements in Data and Technology: The availability of vast amounts of data, coupled with advancements in technology, has fueled the growth of parametric insurance. Sophisticated modeling techniques and real-time data sources allow insurers to accurately assess and quantify risks associated with specific triggers. This data-driven approach facilitates streamlined underwriting processes and efficient claim settlements, making parametric insurance an attractive option for both insurers and policyholders.
- Faster Claim Settlements: Traditional insurance claims can involve lengthy assessment periods and complex negotiations, leading to delays in payouts. In contrast, parametric insurance relies on predefined triggers and payout structures. As a result, claim settlements can be significantly faster, often occurring within days or even hours of an event. This speed and certainty of payment make parametric insurance particularly appealing to businesses that require immediate liquidity to recover from a disruptive event.
- Customizable Coverage: Parametric insurance allows for high levels of customization to suit specific needs. Policyholders can define triggers and parameters that align with their risk profile, ensuring that coverage accurately reflects their unique vulnerabilities. This flexibility enables businesses operating in diverse sectors, such as agriculture, energy, and tourism, to tailor coverage to their specific risks, increasing the relevance and appeal of parametric insurance products.
- Alternative Risk Transfer Mechanism: Parametric insurance serves as an alternative or complementary risk transfer mechanism to traditional insurance. It can be utilized alongside conventional coverage to fill gaps in protection or address risks that are challenging to insure conventionally. By diversifying risk management strategies, businesses can enhance their overall resilience and protect against unforeseen events that may not be covered by standard policies.
- Regulatory Support and Industry Collaboration: Governments and regulatory bodies have recognized the value of parametric insurance in enhancing risk management and promoting economic stability. Supportive regulatory frameworks and initiatives encourage the development and adoption of parametric insurance products. Additionally, collaborations between insurers, reinsurers, technology providers, and data analytics firms have facilitated the growth of the parametric insurance market by harnessing collective expertise and resources.
Parametric Insurance Market: Partnership and Acquisition
- In 2021, AXA, a global insurance company, forms a strategic partnership with The Weather Company, an IBM business. The partnership aims to leverage The Weather Company’s advanced weather data and analytics capabilities to enhance AXA’s parametric insurance products. By integrating real-time weather data, AXA can offer innovative insurance solutions that trigger payouts based on predetermined weather parameters, such as rainfall, temperature, or wind speed.
- In 2018, Swiss Re, a leading reinsurance company, partners with Fathom, a flood modelling and risk assessment firm. The collaboration focuses on combining Swiss Re’s underwriting expertise and risk management capabilities with Fathom’s advanced flood modelling technology. By leveraging Fathom’s data-driven flood risk assessments, Swiss Re can develop parametric insurance products that offer coverage specifically tailored to the flood risk profiles of individual properties or portfolios.
- In 2020, Allianz SE, a multinational insurance company, acquires WeatherBill Inc., a parametric insurance and weather risk management company. The acquisition strengthens Allianz’s presence in the parametric insurance market and grants access to WeatherBill’s proprietary technology platform. This enables Allianz to enhance its parametric insurance offerings, providing customers with tailored risk management solutions based on specific triggers such as weather events or other predefined parameters.
- In 2019, Swiss Re acquires the remaining shares of Agroinsurance International LLC, a company specializing in agricultural parametric insurance solutions. The acquisition expands Swiss Re’s agricultural insurance portfolio and reinforces its commitment to providing innovative risk transfer solutions to farmers and agribusinesses. By leveraging Agroinsurance International’s expertise, Swiss Re can develop parametric insurance products that protect against various perils affecting the agricultural sector, such as drought, excess rainfall, or temperature extremes.
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Parametric Insurance Market: COVID-19 Analysis
The COVID-19 pandemic has had a significant impact on the Parametric Insurance Market, with the industry experiencing both positive and negative effects. Here are some of the key impacts:
- Uncertainty in Trigger Design: The pandemic posed challenges in defining triggers for parametric insurance policies. Unlike natural disasters or weather events with well-established triggers, the widespread and unpredictable nature of the pandemic made it difficult to determine clear triggers for payouts. This uncertainty affected the development and implementation of COVID-19-specific parametric insurance products.
- Reduced Demand for Certain Coverage: The pandemic resulted in a decline in demand for specific parametric insurance coverage. For example, event cancellation policies, which typically provide coverage for disruptions caused by gatherings and conferences, experienced a significant decrease in demand as many events were cancelled or postponed due to lockdowns and social distancing measures.
- Refined Trigger Formulation: Insurers and industry experts are working to refine trigger design and formulation in response to the lessons learned from the COVID-19 pandemic. By incorporating new data sources, advanced modelling techniques, and a better understanding of pandemics, insurers can develop more robust and accurate triggers for future parametric insurance products.
- Diversification of Coverage: The parametric insurance market is diversifying its coverage offerings to address emerging risks. COVID-19 highlighted the need for coverage against pandemics and non-physical damage events. As a result, insurers are developing new parametric insurance products that cover a broader range of risks, including business interruption caused by infectious diseases.
List of the prominent players in the Parametric Insurance Market:
- Swiss Re Group
- Munich Re Group
- AXA Group
- Allianz SE
- Lloyd’s of London
- Swiss Life Holding AG
- Hannover Re Group
- QBE Insurance Group Limited
- Zurich Insurance Group Ltd.
- Sompo Holdings Inc.
- Others
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