Parametric market grapples with changing value proposition

By Henry Gale

June 5 - (The Insurer) - Over recent years, much of the demand for parametric natural catastrophe coverage came from organisations facing challenging property insurance renewals in North America. 2025 marks a definitive change as a soft market sets in.

Some of those who bought parametric insurance in the hard market still have an acute need for the cover. While their property rates are coming down, deductibles may remain high.

But some have non-renewed their parametric contracts because they could revert to traditional products. And the stream of new parametric business opportunities from distressed insurance buyers is drying up in places experiencing soft market conditions.

Yet on the whole, market participants remain optimistic about the parametric sector’s continued growth for three reasons.

First, there are still risks it is challenging for organisations to get coverage for. The market is not soft everywhere, and pockets of distress in particular sectors, regions or perils represent new opportunities.

Second, freed-up budgets have enabled some of those who previously considered parametric to buy it for the first time.

These factors represent a gear shift for the parametric market. Brokers and insurers need to identify and capitalise on the hotspots that need parametric the most, as the (relatively) low-hanging fruit of hurricane-exposed property in North America recedes. And, if accustomed to selling parametric as the cheap option, they must adapt to articulating a different value proposition.

This value proposition is the third reason many stay optimistic: the core features that make parametric covers different. Claims can be paid faster, and the funds used to cover losses that other insurance products would often exclude.

Speaking to Parametric Insurer earlier this week, Swiss Re Corporate Solutions’ Megan Linkin said some corporations that had initially bought parametric as a form of additional property capacity or as a replacement for traditional insurance, have since come to view it as a strategic part of their insurance purchase.

Why? Often because they have experienced a claim and seen the value of fast, certain funds that they can use to cover various expenses.

Strategic buyers purchase the largest limits and are the backbone of the parametric sector’s future in the long-term, regardless of market cycles. As the North Atlantic hurricane season begins, some in the market hope their clients’ policies will be triggered, considering claims the best proof of why parametric is worth it.