Parametric solutions can spring from early successes into new lines
Parametric insurance solutions will build on strong growth in 2023 and take a growing share of the total insurance world as its usage builds on early success and expands into new lines, analysts at the AM Best ratings agency have claimed.
Utilisation of parametric covers is expected to expand beyond the property and casualty space, into management liability, financial lines, and cyber, analysts wrote in their latest research.
With new emerging risks continuing to arise, many will prove well placed to be covered by parametric solutions, AM Best wrote.
Cyber is another area where parametric insurance may be able to complement cover that is already available through traditional cyber insurance covers. A higher usage of cloud computing makes the risks and costs associated with cloud downtime, like lost revenue and depleted productivity, greater.
Aggregation of potential downtime losses for cybers insurers is complex to determine, the rating agency pointed out, and may be excluded from contracts, accordingly. With a parametric product, should cloud downtime exceed a specified threshold this would trigger a swift payout without having to undergo a claims adjusting process.
Although predominately a feature in developing markets, parametric covers for natural disasters may also become more attractive in mature markets which are confronted with the impacts of changing climate trends.
The increased frequency of weather events, like severe storms and flooding, pose a real threat to communities which may struggle to find sufficient protection through traditional insurance markets.
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