Page 51 - The Insurance Times November 2025

4. Reduced Administrative Costs: For insurers and reinsurers, it opens new opportunities in
Elimination of physical loss surveys has cut claim climate finance, ESG-linked investments, and public-private
management costs by nearly 30–40%. partnerships, enabling them to move from reactive loss
settlement to proactive risk resilience.
5. Data-Driven Risk Understanding:
Satellite and weather station data have improved
climate modeling, enabling better pricing and prod- However, to unlock its full potential, governments must in-
uct customization. vest in weather infrastructure, data quality, and public lit-
eracy while ensuring appropriate regulatory guidance.

Limitations
Recommendations / Key Learnings
Despite its success, parametric insurance faces key chal-
lenges: Invest in Weather and Data Systems: Accurate satel-
1. Basis Risk: Actual losses may exceed or fall short of lite and station data reduce basis risk.
payouts if trigger levels don’t align perfectly with dam- Develop Awareness Programs: Educate policyholders
age on the ground. about triggers, payouts, and limitations.
2. Data Infrastructure: Reliable, localized weather sta- Public–Private Partnerships: Governments, reinsurers,
tions and satellite data are essential—still lacking in and insurers must collaborate to expand reach and
many regions. affordability.
3. Regulatory Gaps: Many insurance regulators (includ- Regulatory Clarity: Develop specific guidelines under
ing in India) are still developing frameworks to govern IRDAI and international bodies to standardize paramet-
index-based insurance. ric products.
4. Consumer Awareness: End-users, especially farmers
Integrate with Disaster Risk Management Plans:
and small businesses, often don’t fully understand how Parametric insurance should complement early warn-
parametric triggers work.
ing systems and emergency funds.
5. High Initial Setup Costs: Advanced modeling, satellite
Continuous Model Refinement: Use AI and predictive
data, and partnerships with meteorological agencies re-
analytics to enhance trigger accuracy.
quire investment.
References
Conclusion
Swiss Re Institute. (2024). Parametric Insurance Solu-
Parametric insurance represents a paradigm shift in risk tions for Climate Resilience.
transfer—from loss-based compensation to data-triggered
AXA Climate Report (2023). Index-Based Drought Insur-
financial protection. It is particularly suited to climate-sen- ance in Africa.
sitive and catastrophe-prone sectors, offering transparency,
speed, and efficiency. Government of India, Ministry of Agriculture. (2022). Per-
formance Evaluation of WBCIS.

Countries like India, Kenya, and the Philippines demonstrate World Bank & Global Shield against Climate Risks (2024).
how this model can fill the insurance protection gap for Innovations in Sovereign Risk Transfer Mechanisms.
vulnerable populations while supporting national disaster risk IRDAI (2023). Discussion Paper on Index-Based Insurance
financing strategies. in India.

The Supreme Court sought response from the Reserve Bank of India, the Securities and Exchange Board of India, the
Insurance Regulatory and Development Authority of India and others on a petition seeking formulation of a compre-
hensive legal and institutional framework for identification, reconciliation, and restitution of Rs 3.50 lakh crores un-
claimed financial assets in India to their rightful owners or heirs.

The petition has sought creation of a centralised portal that would allow citizens to access information about all their
financial assets, whether operational, inactive, dormant or unclaimed, across entities regulated by RBI, SEBI, and
IRDAI.

46 November 2025 The Insurance Times