Parametric Insurance Market Expected to Reach $29.3 Billion by 2031—Allied Market Research

According to a new report published by Allied Market Research, titled, “Parametric Insurance Market," The parametric insurance market was valued at $11.7 billion in 2021, and is estimated to reach $29.3 billion by 2031, growing at a CAGR of 9.9% from 2022 to 2031.

Parametric insurance coverage differs from traditional insurance as it is not claims driven, with payouts made to customers after a loss. Instead, parametric insurance uses triggers or indexes (not claims) to payout after a specific event has occurred. Policyholders, therefore, are insured against a specific event with payments based on a predefined parameter, rather than the amount of a specific claim or loss. Parametric triggers can be applied to a range of loss types, from hotel occupancy rates to flight delays to the depth of a flood. Generally, a parametric contract includes the client, a specific parameter or index (the trigger), the contract or output (a payment amount), a third party or analytical agent responsible for verifying the trigger (i.e., a government agency), and the capital provider. Thus, these factors can be concluded as parametric insurance definition.

In recent years, insurtech entrants have helped incumbents recognize the need for innovation and flexibility when it comes to underwriting risk and creating new product solutions. Parametric insurance, which is powered by sophisticated analytics, new data sets, and innovative technologies, provides an opportunity for incumbents looking to supplement and evolve their approach to loss prevention/mitigation and disaster financing. Furthermore, parametric contracts solve a multitude of problems for insurers by protecting against economic losses and increase in risk awareness by sourcing additional capacity and providing liquidity through pre-defined payouts. In addition, it helps to develop embedded insurance products and micro-offerings in areas where traditional individual coverage is extremely limited or non-existent (for example, flight delay insurance), benefiting the parametric insurance market trends. Thus, these factors promote the growth of the parametric insurance industry.

The parametric insurance market is segmented on the basis of type, end user, and region. By type, it is segmented into natural catastrophes, specialty insurance, and others. By end user, it is segregated into agriculture, construction, mining, manufacturing, energy and utility, aerospace and defense, and others. By region, it is analyzed across North America, Europe, Asia-Pacific, and LAMEA

On the basis of industry vertical, the construction segment is expected to grow at a fastest rate during the forecast period. This is attributed to the fact that traditional property damage plans ignore the impact of seasonal fluctuations in temperature, rainfall, or snow on a portfolio of construction projects, despite the fact that this cost is frequently significantly higher than the cost of repairing a structure after flooding or wind damage. Hence, the parametric insurance cover is increasingly helping contractors to mitigate weather related perils during construction and operations.    

By region, the global parametric insurance market is being dominated by North America in 2021, and is expected to maintain this trend during the forecast period. This is attributed to the fact that parametric insurance has become a more feasible alternative for helping organizations create climate resilience and boost catastrophe response and recovery in places such as the U.S. and Canada. Moreover, insurance companies are increasingly expanding their parametric insurance business to North America, resulting in the growth of the market.

The parametric insurance market has been positively impacted by the COVID-19 outbreak. This is attributed to the fact that consumer trends toward parametric insurance are changing and key players in the market are adopting technologies, such as artificial intelligence-based solutions for claim processing & cognitive automation for real-time interaction with consumers. Moreover, to curb the spread of the virus, several insurance companies have streamlined their process of claim settlements and insurance services in the market. Furthermore, AI technology aids in tracking real-time insured data, allowing for better services during the pandemic. These factors, promote the parametric insurance market growth during the pandemic situation.   

Key findings of the study

• By type, the natural catastrophe segment led the parametric insurance market in terms of revenue in 2021.
• By industry vertical, the agriculture segment accounted for the highest parametric insurance market share in 2021.
• By region, North America generated the highest parametric insurance market size in 2021.

The key players profiled in the parametric insurance market analysis are Allianz, AXA XL, Chubb, FloodFlash, Jumpstart Insurance Solutions, Inc., Berkshire Hathaway Specialty Insurance, Munich Re, Global Parametrics, Swiss Re, and Zurich American Insurance Company. These players have adopted various strategies to increase their market penetration and strengthen their position in the industry.