The advantages of parametric insurance
OVERCOMING BARRIERS TO ENTRY
grips with the opportunities presented by parametric insurance. Many regulators are now very amenable to and supportive of their roll-out. On the supply side, parametric insurance may provide a solution for issues of scalability. It is commercially viable for an insurer to offer crop cover to large- scale industrial farms in, say, the US, France or the UK, where premiums are large enough to cover underwriting and claims management costs. In places such as India, however, where the majority of agriculture is through smallholdings, there are too many small farms and not enough premium income to make traditional models profitable. However, it is now increasingly feasible to cover these farms through parametric policies potentially sold direct to the farmer using microinsurance principles.
As well as being well-suited to building resilience to natural disasters and weather events, parametric products can also help overcome some of the barriers commercial insurers can face when entering new and developing markets. For example, governments in developing markets may have concerns about international insurers competing with local insurers for standard business. These barriers tend to be less problematic when international players can demonstrate they are offering something unavailable in local markets. Clyde & Co’s research, undertaken by its insurance teams globally, suggests that in many parts of the world regulators and legislators are rapidly getting to
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