Anyone linked to the (re)insurance industry, whether directly as a risk carrier, an intermediary or a cedant, or more distantly as a service provider, a development agency or a non-governmental organization, has probably heard the phrase “parametric insurance" buzzing around recently. It pops up to varying degrees in discussions on most topics, from closing the protection gap to ensuring the environmental transition toward sustainability. It represents an established market, with parametric solutions used as a hedge in the commodity sector, as cover against catastrophe risks for public assets, or as a volatility cap and cover against drought in agriculture. You have probably heard “parametric solutions” mentioned at all application levels, from microinsurance to corporates and from financial institutions to public authorities. They have gained so much attention that service providers are flourishing, and product development is being fueled by their combined differentiation efforts. The vast amount of parametric data sources available harbor big promises that the virtual world, the index, can holistically represent any risk situation and relieve society of some of its burdens. Parametric is a ubiquitous term in the (re)insurance world, but beyond its promises, do we really understand it?
This three-part series is intended as a guide to the practice of parametric insurance. Part One provides a short introduction and takes us on a journey across a rich landscape of rising risks, environmental transition data, and application fields.