Parametric cover, when triggered by event occurrence, would allow businesses to get a payout rapidly, without having to prove physical damage from an extreme weather event. This would be critically helpful in terms of cash flow.
As the impact of climate risk has been overlooked in some cases (see figure one), businesses have been left underinsured.
“With climate change and the increase in extreme weather events, some businesses underestimate the full extent of their potential nat cat losses, which can be quite far-reaching beyond just direct property damage or the business interruption which results. That leaves them underinsured,” said Hoe-Yeong Loke, head of research at Airmic.
He also highlighted that "organizations need better data to fully quantify their potential nat cat losses".
"The process through which they collect data to develop a parametric solution, with support from their broker and insurer, will help them correlate the business model to these risks," said Loke.
Parametric insurance plays a key role in mitigating these risks. However, the survey found two thirds of respondents have considered but not purchased parametric insurance cover.
“Parametric cover, when triggered by event occurrence, would allow businesses to get a payout rapidly, without having to prove physical damage from an extreme weather event. This would be critically helpful in terms of cash flow,” said Loke.
Figure 1: To what extent have you considered or purchased parametric insurance covers?
The survey also found more than three-quarters of respondents do not consider that traditional property damage and business interruption (PDBI) policies provide the needed cover for natural perils, due to the restricted or excluded coverage of those policies.
Airmic will join forces with AXA Climate and PARIMA, Airmic launch the Climate School for members in January 2023.
The school will provide online courses to risk professionals across climate change, biodiversity collapse and natural resource depletion to further their understanding of these areas, especially their impact.
The association has also partnered with risk management organizations in the UK including ALARM, the Institute of Risk Management to launch a risk management guide that "represents good practice against which organizations can measure themselves".
