Guy Carpenter, Marsh McLennan’s reinsurance broking arm, has launched a new research project to explore using parametric insurance solutions to insure communities across California and Florida for wildfire and hurricane risks.
The research is in collaboration with Guy Carpenter’s Parametric Advisory and Public Sector teams, the Institute of Environment at Florida International University, the Climate Adaptation Center in Sarasota, the Center for Coastal Climate Resilience at UC Santa Cruz, and the University of Michigan.
It will focus on a “community-based parametric reciprocal exchange,” which is an insurance model where a community of homeowners or small businesses come together to share natural catastrophe risks.
The payouts are automatically triggered when specific, predefined measurable events or conditions, such as wind speeds or rainfall levels, have been met.
All the researchers together aim to gain an in-depth understanding of the regulatory environment for parametric reciprocal exchanges, identify best practices to communicate the value of such a model, and engage with local communities to establish the foundations for larger-scale research and pilot projects.
This research project aligns with Guy Carpenter’s larger work in advocating for community-based catastrophe insurance (CBCI), a concept developed in partnership with the Wharton Risk Management and Decision Processes Center and Marsh McLennan.
Dr Guillermo Franco, Global Head of Cat Risk Research, Guy Carpenter, commented, “Insurance plays a critical role in recovery from natural disasters, but many households and small businesses do not have sufficient coverage to fund repair and rebuilding due to affordability of products, limited risk awareness, or behavioural biases in decision making.
“Community-based catastrophe insurance programmes like parametric reciprocal exchanges, may constitute an innovative way to help close this protection gap in the US and speed up payments to aid recovery, which will enhance the financial resilience of communities.”
