The note explores how key design elements such as index selection, trigger mechanisms and payout structures can enhance the adoption of parametric insurance against NatCat.
Understanding and addressing protection gaps is a key focus area of the IAIS’ work, recognising its relevance to the IAIS’ strategic theme of supporting insurance in its societal purpose of building resilience.
In a joint FSI-IAIS note entitled Uncertain waters: can parametric insurance help bridge NatCat protection gaps?, staff from the IAIS and BIS’s Financial Stability Institute (FSI) examine parametric insurance coverage for natural catastrophe (NatCat) risks, focusing on its design elements.
The note explores how key design elements such as index selection, trigger mechanisms and payout structures can enhance the adoption of parametric insurance against NatCat. It synthesises insights from a survey of 12 insurance supervisory authorities and seven market participants, with a focus on non-agricultural applications for households and small and medium-sized enterprises (SMEs).
Key findings highlight the importance of transparent and reliable index selection, high-quality data and a supportive regulatory environment. The paper identifies several measures to enhance data quality, improve analytical and modelling capabilities, and foster consumer education and awareness. By addressing these challenges, parametric insurance can play a critical role in strengthening economic and societal resilience in the face of growing NatCat risks.
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