Parametric insurance will be next big thing in insurance sector, says Bajaj Allianz MD

In today's rapidly changing world, risks are evolving.

- RITWIK MUKHERJEE

Climate change, rapid technological advancements, and accelerating industrialisation are transforming the global risk landscape. Recent statistics paint a sobering picture: in 2024, the planet reached a critical environmental benchmark, with Earth's average temperature soaring to 1.62 degrees Celsius above pre-industrial levels. This figure not only eclipses the Paris Climate Agreement's targets but also sets a precedent for the coming decades.

Climate change and natural disasters are increasingly impacting trade and economic losses. Insurers are weighing various innovative options to mitigate such risks. Parametric insurance is coming up as one such option.

Speaking to The Statesman, Tapan Sighel, MD & CEO, Bajaj Allianz General Insurance explains if parametric insurance is the Next Big Thing in insurance.

Excerpts:

Q: How are climate change, natural calamities, natural disasters and devastations increasingly impacting economic and trade losses, besides human losses?

A: With Myanmar recently experiencing a devastating 7.7 magnitude earthquake that resulted in significant human and economic losses, it raises pressing concerns about the potential impact of similar events occurring in our own country (Source Scientific American). Experts warn that a major earthquake in the Himalayan region is overdue and could happen at any time, with the potential to cause severe repercussions in the northern part of our nation.

Climate change is increasingly impacting global trade. Due to reduced water levels, the Panama Canal authorities have imposed strict restrictions on ship voyages. As a result, cargo ships face prolonged delays—sometimes waiting days or weeks—when crossing the canal. The ongoing drought severely disrupts shipping operations, leading to significant economic losses in global trade, going by WEF study.