Parametric Insurance: Modern Disaster Risk Management

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Explore how Arbol is bridging the climate gap with parametric insurance solutions.

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Jan 2, 2024
By Arbol

What do you see when you picture the aftermath of a major natural disaster? Images of devastation, loss, and uncertainty swimming in and out of view? Perhaps you also have a sense of time out of joint as you envision people suspended in an awkward present that finds them trying to take stock of a calamitous event while also planning for the future. Now, imagine an insurance solution that reacts almost instantly after such events providing clarity in moments of chaos. In essence, that’s what parametric insurance does; it gives communities and businesses the power to rebuild quickly.

Navigating the Storm: Why Modern Disaster Risk Management is Crucial

As 2023’s record-breaking heat waves have shown, climate change is not an abstract threat but a present-day challenge with massive economic implications. From 2016-2022, natural disasters in the U.S. have resulted in $1 trillion in damages.  Swiss Re projected that if left unchecked, climate change could erase up to 18% of global GDP by 2050. Given the steady uptick in extreme weather events that we’ve seen over the last number of years, it’s clear that there is a need for a risk management strategy that is responsive and dependable.

Trends in global average surface temperature between 1990 and 2021 in degrees Fahrenheit per decade. Most of the planet is warming (yellow, orange, red). Only a few locations, most of them in Southern Hemisphere oceans, cooled over this time period. NOAA map, based on data from NOAA Centers for Environmental Information.

Beyond Traditional Coverage: The Unparalleled Edge of Parametric Insurance

Parametric insurance addresses the limitations of traditional indemnity insurance. For agents, the pitch to clients is straightforward: parametric insurance guarantees quick payouts based on objective criteria, eliminating the need for lengthy adjustment processes. Instead of relying on claims adjusters, payouts are tied to verified and trusted public climate datasets. Furthermore, parametric insurance is versatile and provides solutions for various risks worldwide, which conventional insurance models often neglect.

The Mechanics of Parametric Solutions: An Agent's Toolkit

  • Data-Driven Approach: Parametric insurance is based on specific triggers derived from data.
  • Reliable Sources: These triggers are sourced from trustworthy datasets, ensuring accurate tracking of an event's occurrence and severity.
  • Predefined Parameters: Payout is automatically triggered once a set parameter is reached or surpassed.
  • Flexibility in Usage: Once paid, clients have the freedom to use their funds as they see fit.

Arbol: Pioneering the Future of Disaster Risk Insurance

At Arbol, we’re committed to broadening the scope of disaster risk management. To that end, we’re eager to partner with agents and brokers that are interested in bringing top-tier risk management solutions to new or underserved markets. If you’re interested in partnering with a company whose ethos is grounded in a spirit of cooperation, we invite you to contact us here.

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