Sustainability Atlas
Climate Finance & Markets·15 min read··...

Case study: Insurance & risk transfer — a sector comparison with benchmark KPIs

A concrete implementation with numbers, lessons learned, and what to copy/avoid. Focus on pricing, underwriting models, parametric triggers, and basis risk.

In 2024, global insured natural catastrophe losses reached $137 billion—significantly exceeding the 10-year average of $98 billion—while the first half of 2025 alone saw insured losses surge to $100 billion, a 40% increase from the same period in 2024 (Swiss Re, 2025). For the first time in modern history, a majority of climate-related losses were covered by insurance rather than absorbed by governments or individuals. Yet this apparent success masks a deeper structural challenge: the protection gap is widening, parametric triggers are reshaping underwriting fundamentals, and entire regions are becoming uninsurable. This case study examines how insurance and risk transfer mechanisms are evolving across sectors, benchmarks the key performance indicators that separate effective climate resilience strategies from performative coverage, and identifies the operational lessons sustainability leaders must internalise to navigate this rapidly transforming landscape.

Why It Matters

The insurance sector sits at the nexus of climate adaptation, financial resilience, and corporate sustainability strategy. When properly structured, risk transfer mechanisms can unlock capital for climate-vulnerable projects, incentivise resilient infrastructure investment, and distribute catastrophic losses across global capital markets rather than concentrating them in affected communities.

The catastrophe bond market exemplifies this transformation. Outstanding cat bond capacity reached $52.2 billion in Q1 2025—up 17% year-over-year—with record issuance of $17.7 billion across 67 transactions in 2024 alone (Artemis, 2025). This capital inflow reflects institutional recognition that climate risk requires new financial architecture. The parametric insurance market, valued at $16.2 billion in 2024, is projected to reach $51.3 billion by 2034, growing at a compound annual rate of 12.6% as AI adoption and climate disaster frequency accelerate (Global Market Insights, 2025).

For sustainability professionals, understanding these mechanisms is no longer optional. Regulatory frameworks from the EU's Corporate Sustainability Reporting Directive to the SEC's climate disclosure rules increasingly require disclosure of physical and transition risks—and the insurance arrangements that mitigate them. Munich Re's 2030 Climate Ambition targets, announced in December 2025, now mandate net-zero alignment across underwriting portfolios, creating cascading requirements for insured enterprises to demonstrate credible transition pathways.

Key Concepts

Parametric vs. Indemnity Insurance

Traditional indemnity insurance reimburses actual losses after claims adjustment—a process that typically requires 30-90 days and generates disputes over coverage interpretation. Parametric insurance, by contrast, pays predetermined amounts when objective triggers are met: wind speeds exceeding specific thresholds, rainfall measurements from designated weather stations, or satellite-detected flood extents. This structure eliminates claims disputes and accelerates payouts to 24-48 hours for blockchain-enabled products.

The tradeoff is basis risk—the possibility that triggers activate without corresponding losses (false positives) or fail to activate despite genuine damage (false negatives). Managing basis risk requires sophisticated index design, composite triggers drawing on multiple data sources, and transparent calibration methodologies. The IAIS-FSI December 2024 guidance on parametric insurance identifies basis risk management as the primary regulatory concern, recommending multi-parameter triggers and mandatory disclosure of historical trigger-loss correlations.

Insurance-Linked Securities (ILS)

The ILS market—encompassing catastrophe bonds, sidecars, collateralised reinsurance, and industry loss warranties—reached $45.6 billion in mid-2024, with sidecar capacity hitting a record $10 billion (Aon, 2024). These instruments transfer peak catastrophe risks to capital market investors, providing capacity that traditional reinsurance markets cannot absorb. For corporate sustainability strategies, understanding ILS dynamics matters because reinsurance pricing directly affects primary insurance availability. When cat bond spreads tightened through late 2024 due to strong investor demand, capacity for climate-exposed assets improved across downstream markets.

Climate Risk Underwriting Standards

Both Swiss Re and Munich Re have formalised climate transition requirements for underwriting eligibility. Swiss Re's 2025 targets restrict oil and gas coverage to producers with verified net-zero 2050 commitments including Scope 3 emissions, while Munich Re achieved greater than 95% emissions reduction in insured oil and gas production between 2019-2025. These standards create de facto market access requirements: companies without credible transition plans face restricted coverage, higher premiums, or outright unavailability of critical risk transfer products.

Sector-Specific KPIs

The following benchmarks represent industry standards across climate insurance and risk transfer mechanisms:

KPI CategoryMetricIndustry BenchmarkLeading Practice
Payout SpeedTime from trigger to payment30-90 days (indemnity)<48 hours (parametric)
Basis RiskTrigger-loss correlation>75% alignment>90% with multi-index
Claims RatioClaims paid vs. premiums60-70% sustainableSector-dependent
Protection Gap ClosureInsured vs. total losses38% global average>60% in mature markets
Portfolio DecarbonisationGHG intensity reduction-20% by 2030-45% (Munich Re coal)
Data IntegrationSources for risk modelling5-10 traditional80+ (Descartes standard)
Geographic CoverageCountries with active products10-20 (traditional)60+ (parametric leaders)
Product Development CycleTime to launch new coverage12-18 months3-6 months (insurtech)

What's Working

Parametric Products for Rapid Response

The structural advantages of parametric insurance are proving decisive for climate-vulnerable sectors. Descartes Underwriting, operating across 60+ countries, achieves claims settlement within 7-14 days post-event using 80+ data sources including NASA, NOAA, and ECMWF satellite imagery. Their January 2025 launch of $70 million parametric tornado coverage for US utility-scale solar farms demonstrates how renewable energy assets—previously considered difficult to insure due to geographic dispersion—can secure meaningful protection.

Kettle, the Bermuda-based wildfire specialist, exemplifies vertical specialisation success. Their AI models consuming 130+ terabytes of satellite, weather, and utility data predicted 97% of burned California properties within their highest risk quartile during 2020. Following the January 2025 Los Angeles wildfires—with insured losses exceeding $40 billion—Kettle's parametric policyholders received claims settlement within 24 hours, compared to months-long delays for traditional coverage holders.

Catastrophe Bond Market Maturation

The cat bond market's evolution from exotic derivative to mainstream risk transfer vehicle reflects successful innovation. Average transaction size increased from $218 million in 2023 to $262 million in 2024, while 36 distinct primary insurers brought deals to market—up from 25 the prior year (Artemis, 2025). Cyber cat bonds, essentially nonexistent before 2023, now represent approximately $800 million in outstanding coverage, with five transactions totalling $575 million issued in the past year.

For sustainability leaders, cat bond market health serves as a leading indicator of climate risk capital availability. When spreads compress—as they did through late 2024—risk transfer costs decline across the ecosystem.

Public-Private Climate Resilience Partnerships

Hybrid structures combining government backstops with private market efficiency are expanding coverage to previously uninsurable populations. African Risk Capacity, receiving $27 million in Dutch government funding during June 2024, provides parametric drought coverage to sovereign governments across the continent. The Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC) has paid over $280 million to member governments since inception, with payouts typically arriving within 14 days of triggering events.

What's Not Working

Regional Insurability Crisis

Despite overall market growth, climate change is rendering certain geographies functionally uninsurable through private markets. California experienced a 203% increase in homeowner insurance non-renewals between 2018-2022, with State Farm and Allstate withdrawing from the state entirely. Florida has seen 12+ insurers exit since 2020. Munich Re explicitly warns that properties in high-risk zones are becoming "uninsurable, unsaleable, ultimately unusable"—a progression that climate models suggest will accelerate.

The fundamental tension is between actuarial reality and social necessity. Accurate risk-based pricing makes coverage unaffordable; subsidised pricing invites moral hazard and adverse selection. No market-based solution currently resolves this contradiction, and regulatory interventions—from California's Proposition 103 rate approval requirements to Florida's Citizens Property Insurance Corporation as insurer of last resort—create their own distortions.

Historical Data Model Limitations

Traditional underwriting relies on historical loss experience to price future risk—an approach that assumes stationarity in underlying hazard distributions. Climate change invalidates this assumption. A 2025 study in Frontiers in Climate found that index insurance products calibrated on historical data systematically underestimate emerging risk frequencies, particularly for compound events combining multiple hazard types.

Munich Re's Location Risk Intelligence platform addresses this partially through forward-looking climate scenarios generating "1-in-100 Year Hazard Intensities" projections. However, model uncertainty remains substantial, and the gap between modelled and experienced losses in recent years suggests systematic underestimation of tail risks.

Basis Risk in Extreme Events

While parametric products excel for moderate severity, high-frequency events, basis risk challenges intensify for rare, severe occurrences. The January 2025 Los Angeles wildfires exposed coverage gaps where parametric triggers—calibrated on historical fire intensity patterns—failed to capture the unprecedented urban-wildland interface dynamics. Some policyholders with triggered parametric coverage received payouts far below actual losses; others with genuine losses found triggers unmet due to measurement station placement.

Key Players

Established Leaders

Swiss Re remains the global reinsurance standard-bearer, with its Climate Transition Plan approved at the April 2025 AGM establishing net-zero targets across underwriting, investments, and operations by 2050. Their CatNet proprietary tool provides location intelligence for natural catastrophe underwriting, while the Sustainability Compass guides decision-making and ESG reporting. Swiss Re's parametric heat insurance—covering 46,000 women in India—demonstrates commitment to protection gap closure beyond commercial markets.

Munich Re has achieved over 95% emissions reduction in insured oil and gas production since 2019 and announced December 2025 Ambition 2030 targets including 45% absolute emissions reduction in coal power underwriting. Their NatCatSERVICE provides five decades of loss data supporting industry-wide risk assessment, while the Climate Financial Impact Edition integrates physical risk metrics into underwriting pricing.

Lloyd's of London continues innovating through syndicate structures. Syndicate 3939, launched November 2024, operates as the first parametric-only syndicate at Lloyd's, signalling market acceptance of trigger-based products as distinct underwriting class.

Emerging Startups

Descartes Underwriting (Paris, founded 2018) has raised over $120 million through Series B, with Battery Ventures leading an undisclosed Series C in 2025. Operating in 60+ countries with 400+ corporate clients, their $200 million+ gross written premium positions them as the leading parametric MGA globally. CNBC named them among the World's Top 150 Insurtechs for 2024.

Kettle (Bermuda, founded 2019) raised $29.7 million through Series A from investors including DCVC, LowerCarbon Capital, and True Ventures. Their AI models extracting 70 risk indicators from 130+ terabytes of data enable wildfire prediction accuracy unmatched by traditional actuarial methods. The November 2024 appointment of Isaac Espinoza (former Root SVP of Reinsurance) as CEO signals maturation toward broader market penetration.

Floodbase achieved AM Best A+ rating for their California municipal atmospheric river coverage program, launching in partnership with Amwins during 2024. Their API provides real-time flood monitoring enabling parametric trigger verification.

Key Investors and Funders

Blackfin Capital Partners led Descartes Underwriting's Series A, demonstrating European private equity appetite for climate insurtech. Acrew Capital led Kettle's Series A with participation from Homebrew, Anthemis, and notably LowerCarbon Capital—Chris Sacca's climate-focused fund. Battery Ventures brought former Guidewire CEO Marcus Ryu to Descartes' board, signalling insurance technology operational expertise. Government funders including the Dutch Ministry of Foreign Affairs (African Risk Capacity) and UK Foreign, Commonwealth & Development Office continue supporting parametric expansion in emerging markets.

Examples

1. Swiss Re Parametric Heat Coverage for Agricultural Workers (India)

Swiss Re partnered with SEWA (Self-Employed Women's Association) to provide parametric heat insurance to 46,000 women agricultural workers across Gujarat. When temperature indices exceed predetermined thresholds during critical working periods, payments trigger automatically—enabling workers to reduce heat exposure without income loss. This program demonstrates parametric product adaptation for livelihood protection beyond asset coverage, addressing the human dimension of climate vulnerability that traditional property insurance ignores.

2. Descartes Solar Farm Tornado Coverage (United States)

In January 2025, Descartes launched $70 million parametric tornado coverage for utility-scale solar farms across the US Midwest and Southeast. Traditional coverage struggled with solar assets due to geographic dispersion and difficulty assessing damage across thousands of panels. Descartes' satellite-based verification enables claims processing without site inspections, while parametric structure provides certainty for project finance lenders requiring proof of risk transfer. The product exemplifies how parametric innovation enables climate infrastructure investment at scale.

3. CCRIF Sovereign Parametric Coverage (Caribbean)

The Caribbean Catastrophe Risk Insurance Facility has paid over $280 million to 22 member governments since 2007, with payments typically arriving within 14 days of triggering events. Following Hurricane Beryl in July 2024, CCRIF disbursed $44 million to affected governments—providing immediate liquidity for emergency response while traditional aid mobilisation remained weeks away. The facility's pooled structure reduces costs for individual nations while its parametric mechanism eliminates claims disputes that historically delayed post-disaster sovereign assistance.

Action Checklist

  • Conduct climate risk exposure assessment mapping physical and transition risks across operations, supply chains, and asset portfolios using scenario analysis aligned with TCFD recommendations
  • Evaluate current insurance coverage against identified exposures, identifying protection gaps where traditional indemnity products are unavailable, unaffordable, or inappropriately structured
  • Assess parametric product applicability for high-frequency, moderate-severity risks where payout speed matters more than precise loss reimbursement—particularly business interruption and supply chain exposures
  • Engage with reinsurance market indicators by monitoring cat bond spreads, ILS capacity, and reinsurer climate transition requirements as leading indicators of future primary market conditions
  • Integrate insurance strategy into transition planning ensuring risk transfer arrangements support rather than contradict net-zero commitments and avoiding coverage structures that create stranded asset exposure
  • Establish basis risk tolerance thresholds for parametric products, understanding the tradeoffs between payout certainty and loss correlation before committing to trigger-based structures
  • Monitor regulatory developments across jurisdictions, particularly IAIS parametric guidance, EU SFDR alignment requirements, and emerging disclosure mandates affecting insurance procurement

FAQ

Q: What is the difference between traditional insurance and parametric insurance for climate risks? A: Traditional indemnity insurance reimburses actual documented losses after claims adjustment, typically requiring 30-90 days and extensive verification. Parametric insurance pays predetermined amounts when objective triggers are met—such as wind speeds exceeding specific thresholds or satellite-detected flood extents—regardless of whether actual losses match payout amounts. The tradeoff is basis risk: parametric payments may exceed or fall short of actual losses. For climate applications, parametric structures offer superior payout speed (24 hours to 14 days versus months), eliminate claims disputes, and enable coverage in data-sparse environments where traditional loss adjustment is impractical.

Q: How do catastrophe bonds work and why do they matter for corporate sustainability strategy? A: Catastrophe bonds transfer peak natural catastrophe risks from insurers and reinsurers to capital market investors. Sponsors pay premium-like coupons; if defined triggering events occur (earthquakes exceeding magnitude thresholds, hurricanes causing industry losses above specified amounts), investors lose principal which funds claims payments. For sustainability strategists, cat bond market health directly affects downstream insurance availability. The market's growth to $52.2 billion outstanding in Q1 2025 signals expanding capital market appetite for climate risk—which translates to improved coverage availability for climate-exposed assets and operations.

Q: What should organisations consider before purchasing parametric climate insurance? A: Key considerations include: basis risk tolerance (understanding that payouts may not match actual losses); trigger design quality (preferring multi-index triggers using verified data sources like NOAA or ECMWF); historical correlation analysis (requesting data on how proposed triggers would have performed against actual losses in past events); payout timing requirements (ensuring speed advantages justify basis risk acceptance); regulatory treatment (confirming parametric products satisfy insurance requirements in relevant jurisdictions); and integration with broader risk management (ensuring parametric coverage complements rather than duplicates existing indemnity arrangements).

Q: Are certain regions or sectors becoming uninsurable due to climate change? A: Yes. California and Florida have experienced significant insurer withdrawals, with non-renewal rates increasing over 200% in California between 2018-2022. Munich Re explicitly identifies properties in high-risk zones as potentially becoming "uninsurable, unsaleable, ultimately unusable." However, "uninsurability" is often price-dependent rather than absolute—coverage may remain available at actuarially accurate rates that policyholders find unaffordable. Parametric products, public-private partnerships, and alternative risk transfer mechanisms can extend coverage where traditional markets retreat, though often with coverage structure limitations.

Q: How are major reinsurers incorporating climate transition requirements into underwriting? A: Swiss Re restricts oil and gas coverage to producers with verified net-zero 2050 commitments including Scope 3 emissions and has committed to thermal coal reinsurance phase-out by 2030 in OECD countries. Munich Re achieved over 95% emissions reduction in insured oil and gas production between 2019-2025 and targets 45% absolute emissions reduction in coal power underwriting by 2030. These requirements cascade through primary insurance markets, effectively creating coverage prerequisites for transition planning. Companies without credible decarbonisation pathways face increasingly restricted access to property, liability, and operational insurance products.

Sources

Topics

insuranceriskadditionalitytransition planscenario analysiscapeximpact measurement

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