Parametric Insurance - A Disruptive Model for Climate and Catastrophe Risk Management

Executive Summary - Traditional indemnity-based insurance models have long faced challenges in addressing the growing frequency and severity of natural disasters.

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Delays in claims settlement, data gaps, and difficulties in loss assessment often leave vulnerable populations and businesses financially exposed. Parametric insurance, also known as index-based insurance, offers an innovative alternative. Instead of reimbursing actual losses, it pays out a predefined amount when a specific parameter or trigger event (such as rainfall, wind speed, or earthquake magnitude) is met or exceeded.

This case study explores how parametric insurance has been successfully implemented to mitigate disaster risks and strengthen financial resilience, focusing on examples such as Swiss Re's parametric cyclone cover in the Philippines, AXA Climate's drought insurance in Africa, and India's Weather-Based Crop Insurance Scheme (WBCIS).

This study examines the evolution, implementation, and outcomes of parametric insurance, using real-world examples from the Philippines, Kenya, and India. It provides a comprehensive analysis of how this model enhances resilience, supports sustainable finance, and integrates with national disaster risk management frameworks.

Through a detailed analysis of the concept, challenges, outcomes, and limitations, the study highlights how parametric insurance can bridge the protection gap for climate-exposed sectors—especially in agriculture, energy, and infrastructure. The findings reinforce that while parametric solutions offer speed, transparency, and scalability, their success depends on accurate data modeling, reliable weather infrastructure, and effective regulatory support.

Introduction