Weather insurance's evolution on par with rise in adverse climate events

Source: Supplied. Vis Govender, co-founder of Everything.Insure and group CEO of FirstEquity Group.

Hurricanes, wildfires, and floods have become disturbingly routine occurrences, driven in part by the rising threat of climate change. Just recently, Gauteng experienced unexpected hail storms, destroying private assets and business infrastructure.

As we navigate these turbulent times, the insurance industry is undergoing a remarkable transformation in the face of changing and extreme weather patterns.

In fact, recently, regulators, policymakers, and leaders within the insurance industry came together at the 28th Conference of the Parties to the United Nations’ Framework Convention on Climate Change (COP28) to discuss the insurance industry’s role in combating the consequences of climate change while enabling better recovery from climate-linked disasters.

During the first week of the much-anticipated climate conference, delegates explored ways to meet the four interlocking goals of reducing emissions, accelerating community mitigation, keeping insurance affordable and available for vulnerable communities, and closing protection gaps between insured and uninsured losses.

Leading the way in adapting to these severe weather patterns and a changing insurance industry is the idea of parametric insurance, which offers a simple, customised, and proactive approach to protecting businesses in this new era.

Staying ahead of unpredictable weather conditions

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Picture this: Your business faces the relentless fury of nature, and the financial stakes are high, with the risks to moveable and immoveable assets becoming increasingly unpredictable.

This unpredictability means insurers’ modelling of the frequency and severity of natural disasters is no longer reliable, making their pricing inaccurate and forcing them to price higher. Traditional insurance models, designed for an era when weather extremes were less frequent, are struggling to keep up, and need to find new ways of underwriting the additional risks that climate change brings. The result? A new, more responsive solution.

Parametric insurance: Precision coverage

Enter, parametric insurance, a fresh take on the established insurance model that simplifies the complex world of risk management. It's not about clashing with insurers to recover losses after a disaster; it's about insuring against specific, measurable triggers where the claim outcome is certain. It's the new standard for control and precision in the face of unpredictable weather.

Imagine securing coverage against wind speeds exceeding 45km per hour or a surge in sea levels in designated areas or receiving less than 120 hours of sunshine in a specific month - and should one of these triggers happen you get a predefined payout regardless of the impact on you.

Parametric insurance is not indemnity based; it is all about securing tailored certainty against that which is most threatening to your business. You are insured against an event and your claim is paid out depending on the magnitude of that event without needing to prove or substantiate your loss.

Parametric insurance is a game-changer; and it's also a magnet for capital. Investors are flocking to this burgeoning marketplace, creating bonds worth billions of dollars to fund parametric insurance opportunities. The result? Lower insurance costs, particularly for businesses and consumers in high-risk areas. The only question is: Why wait for disaster to strike when you can proactively manage your uncertainty?

Fast, automated payouts assured

This innovative approach reduces the cost of insuring, streamlines claims processing, and reduces the need for lengthy delays in getting alignment between insurer and client post-claim. In a world where time is of the essence, parametric insurance ensures fast payouts, bringing relief to policyholders when they need it most. No more waiting around; your financial safety net is assured and automated.

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Parametric insurance also marks a significant shift in the industry's approach to risk management. It is not just about offering different options and quotes; but being trusted advisors. Parametric insurers assist you to design programmes that fit their circumstances perfectly and are also proactively investing in early warning systems and real-time monitoring, offering advice and recommendations to protect businesses and assets.

Picture recommendations and early warnings for sea surges, deep-sea earthquakes, and tsunamis, as well as hail storms or floods all pushed to a mobile phone proactively. Parametric insurers are digital partners, always-on monitors and an early warning system for life changing and life-threatening weather incidents. It is all about the industry acting preemptively in the face of climate-change related weather events.

The insurance industry, not known for its innovativeness, is evolving to meet the challenges of climate change and the intensification of weather-related events and it is critical to ensure that coverage keeps up with the changes.

The transition from traditional models to parametric insurance is not just a step forward - it's a leap into a future where businesses can thrive in the face of nature's unpredictability.