A whitepaper published this month by ICMIF Supporting Member Gallagher Re, Improving climate resilience with parametric insurance, examines the role of parametric insurance in mitigating climate change and how index-based products can help governments and policyholders tackle flood risk. The paper is part of Gallagher Re’s COP28 content.
The paper’s findings state that as climate change continues to increase flood risk around the world, governments must face the challenge of quantifying this risk, and, according to the reinsurer, parametric insurance offers a solution.
Parametric insurance is an alternative risk-transfer instrument based on forward-looking models which can help beneficiaries to strengthen their capacity in terms of floods and enhanced climate resilience. In the paper, the examples of Stuart Network, a non-government organization (NGO) focused on disaster relief, and ICMIF member African Risk Capacity Limited (ARC Ltd, South Africa), a risk pool for governments, demonstrate how parametric solutions can work in practice by enhancing climate resilience in disaster-prone regions of the world. ARC Ltd is a specialist insurance company which provides parametric insurance cover to African countries against climate and disaster risk.
The whitepaper looks at how ARC Ltd has been working the launch of a flood product, thanks to a collaboration with JBA Risk Management, a leader in flood risk science, supported by Gallagher Re. The project seeks to identify the most suitable product methodology that would target severe river floods that threaten to impact populated areas. Supported by Gallagher Re, ARC Ltd aims to create a parametric structure that would be able to estimate the impact of a flood for governments.
The paper says the ongoing improvement of flood risk data and parametric risk transfer mechanisms will be vital to coping with and adapting to climate change and as flood risks continue to rise, advancements in parametric insurance and flood modelling will be an essential part of the “toolbox” for increasing climate resilience. Download the whitepaper here.
In April of this year, ARC Limited announced it had appointed Gallagher Re as its reinsurance broker and risk advisor.
With many African countries bearing the brunt of climate change and the threat of global, interconnected shocks further jeopardising hard-won development gains and livelihoods on the continent – ARC Ltd has ambitious growth plans which foresee the combined use of traditional and alternative capacity providers as part of a unique risk carrier structure that aims to leverage the private sector for a wide range of resilience applications across Africa.
