Photo: Russ Allison Loar via Flickr
Policy Solution

All-risk parametric insurance

Funding and Financing

Overview:

Summary: Parametric insurance bases payouts on the occurrence of pre-determined trigger events. The trigger is based on an index of weather or natural phenomena, which allows the policyholder to protect against the anticipated financial loss of the identified trigger without having to assess actual damage.

Implementation: Utilize parametric insurance to diversify and expand a risk pool. Parametric insurance can protect against a specific climate risk or support broader disaster risk reduction and adaptation.

Considerations for Use: Parametric insurance is a newer approach to managing risk and effectiveness is still being studied. Governments can use parametic insurance to manage catastrophic risk and finance disaster response. Parametric insurance payouts can be disbursed faster than taditional insurance claims because payouts are based on a preset formula.

  • Policy Levers: The mechanism municipalities can use to actualize the intervention. These policy levers will likely be used in combination with each other.

    Funding and FinancingThe allocation of public or philanthropic funding or private financing to implement projects, including risk transfer mechanisms.
  • Trigger Points: Opportunities for municipalities to implement risk reduction and preparedness interventions based on the policy lever, building on the United Nations Environment Programme triggers used in the Beating the Heat handbook (2021).

    Preparatory measures (actions to establish authority to act)Actions to establish/ ensure the authority to act when appropriate trigger-points occur.
  • Intervention Type:
    Planning/Policy
  • Sectors:
    Disaster Risk Management  ,

    Impact:

  • Target Beneficiaries:
    Residents; Property owners; Renters; Business owners
  • Phase of Impact:
    Emergency response and management
  • Metrics:
    Change in index value; Difference of claims paid and actual losses

Implementation:

  • Intervention Scale:
    Region; State/Province
  • Authority and Governance:
    State/provincial government; National government
  • Implementation Timeline:
    Short-term (1-2 Years)
  • Implementation Stakeholders:
    Array
  • Funding Sources:
    Public investment; private investment
  • Capacity to Act:
    High

    Benefits:

  • Cost-Benefit:
    Medium
  • Public Good:
    N/A
  • GHG Reduction:
    N/A
  • Co-benefits (Climate/Environmental):
    N/A
  • Co-benefits (Social):
    Increase property values; Reduce poverty