Parametric Insurance Market Size

Parametric Insurance Market Size

Parametric Insurance Market size was valued at USD 14.8 billion in 2023 and is estimated to register a CAGR of over 11.5% between 2024 and 2032. The market growth is driven by the growing adoption of the latest technologies, such as Internet of Things (IoT), Artificial Intelligence (AI), and Machine Learning (ML) algorithms, to improve customer requirements and services. IoT devices, such as sensors and connected devices, provide real-time data on asset performance (such as machinery operation) and other pertinent metrics, as well as environmental variables such as temperature and humidity.

To get key market trends

  Download Free Sample

By developing and implementing various AI & ML algorithms, insurance companies can create more exact parametric triggers to evaluate this data and assess risks & potential losses more precisely. Additionally, ML algorithms can examine past data and find relationships between variables (such as wind speed or seismic activity) and the actual losses. This minimizes basis risk and boosts the dependability of parametric insurance products by assisting in constructing parametric triggers that closely resemble the insured occurrence.
 

In the context of any weather-related catastrophes, including hurricanes, floods, and droughts, or natural disasters, such as earthquakes and tsunamis, parametric insurance provides quick & predictable financial protection. Businesses & governments are increasingly looking for insurance solutions that offer instant liquidity to support quick recovery and resilience initiatives as climate change deteriorates further. Parametric insurance is incorporated by governments and international organizations more often into their strategy to adapt to climate change.
 

Long-term adaptation efforts are aided by these policies, which offer financial protection in addition to encouraging investments in sustainable development methods & climate-resilient infrastructure. For instance, in February 2024, Munich Re launched a new global parametric solutions team focused on natural catastrophe risk transfer. The new unit maintained strong collaboration with Munich Re's facultative and corporate client sectors. It assembled a distinguished team of specialists in product innovation, catastrophe risk modeling, underwriting, and structuring.
 

The parametric insurance market is facing a major issue of lack of awareness and understanding of parametric insurance. To foster trust and encourage adoption, insurers, brokers, and reinsurers need to invest in educating their stakeholders & clients on the advantages, restrictions, and practical aspects of parametric insurance. This is especially challenging as the principles underlying parametric insurance differ significantly from those of standard indemnity-based insurance.
 

For companies and individuals familiar with traditional insurance models, it can be difficult to understand the parametric triggers, and payout calculations based on predefined parameters, and the idea of basis risk. Low awareness and understanding of parametric insurance may hinder its growth, necessitating targeted education efforts to bridge knowledge gaps and promote adoption in the market.