Demand for parametric covers from corporates and public entities will continue to increase to provide quick liquidity after a disruptive event, address gaps in traditional insurance coverage, and cover non-traditional risks, according to Aon’s Q4 2023 Global Insurance Market Insights Report.
Aon suggested that parametric solutions have now been tested in claims events around the world and are “behaving as expected”, which will reportedly lead to a much higher comfort level in “going down the parametric road”.
The firm additionally noted that capacity will continue to flow into the space, both from established players increasing their capabilities and new players arriving on the scene.
“This will include both traditional capital sources (insurance and reinsurance companies) as well as non-traditional (e.g., insurance-linked securities funds),” Aon explained.
The result of this capital influx will be “not only more competition on programs but also smarter and more effective structures for clients”.
As per Aon, innovation across the sector is also set to increase, both within established perils (such as natural catastrophes and weather) and in new perils (e.g., cyber, marine cargo, and a wide variety of other indices).
“Now that there is a general understanding of parametric solutions as viable – and often vital – tools in the risk management toolbox, the 2024 discussions with clients will explore at a deeper and more granular level how parametric solutions best fit with other tools to create a more optimal risk management strategy,” Aon said.
The firm continued, “As we look into 2024, the trends that took shape in the past few years are likely to continue, and in some cases, get more pronounced.
“In Aon’s 2023 Global Risk Management Survey we saw consistent themes; both business interruption and supply chain/distribution failure were among the top ten risks noted by risk managers today.
“As for future risks, cash flow/liquidity risk was noted as a top ten risk. These are risks that contribute significantly to the protection gap, and they can be directly addressed via parametric mechanisms.”
