Executive summary

Climate‑related disasters are increasing in frequency and cost, yet a vast majority of losses remain uninsured. Around four‑fifths of global flood damages are uncovered, leaving communities, governments and businesses exposed. Parametric and micro‑insurance products offer a way to close this protection gap: they pay out automatically when predefined triggers are met and can scale quickly thanks to digital monitoring technologies. The global parametric insurance market is growing rapidly — from about USD 16 billion in 2024 it is expected to more than double by the early 2030s. This case study profiles pioneering initiatives that have moved from pilot projects to broad deployment. We examine how micro‑insurance provider Pula reached tens of millions of farmers across Africa and Asia, how African Risk Capacity pools risk for 50 million people, and how parametric insurance is being adopted to protect U.S. municipalities and agricultural producers. We then offer a framework and checklist to help sustainability leads evaluate and adopt insurance and risk‑transfer solutions.

Why it matters

Extreme weather events are already harming lives and livelihoods across emerging markets, and the losses are growing. In the United States, California’s 2023 atmospheric‑river season caused an estimated USD 5–7 billion in economic damage, yet 80 % of those losses were uninsured. In Asia and Africa, droughts and floods devastate smallholder farmers who rarely have access to formal insurance. This protection gap undermines resilience and can stall progress on sustainability goals. Insurance and risk transfer allow communities to manage these shocks: they provide rapid liquidity after disasters, enable farmers and businesses to invest in productivity, and can catalyse preventative actions. However, traditional indemnity insurance is slow and expensive, and it often excludes low‑income customers. New models — parametric covers based on measurable triggers and micro‑insurance schemes built on mobile platforms — are changing that paradigm.

Key concepts & market fundamentals

• Parametric insurance: Unlike traditional indemnity policies that reimburse actual losses after lengthy assessments, parametric insurance pays a predetermined amount when a defined trigger (such as rainfall, wind speed, earthquake magnitude or satellite‑observed flood extent) is met. Triggers are often calibrated using historical data and modelling. By bypassing claim adjustments, parametric products provide rapid payouts, reduce administrative costs and allow coverage for risks that are hard to quantify individually. Advances in satellite imaging and Internet‑of‑Things sensors enable increasingly granular triggers.
• Micro‑insurance: Micro‑insurance provides low‑cost coverage to individuals who are typically excluded from traditional insurance markets, such as smallholder farmers. Premiums are kept affordable (often less than USD 10 per season) and distribution is enabled through mobile phones, cooperatives or government programmes. Insurers use parametric triggers to lower costs and may bundle insurance with credit or inputs (e.g., seeds). Programmes often involve public or philanthropic premium support to increase uptake.
• Risk pools and sovereign schemes: National and regional risk pools, like the African Risk Capacity (ARC), allow countries to share catastrophe risks. Governments pay annual premiums and receive payouts when agreed triggers are reached. Risk pools often layer parametric reinsurance with donor or multilateral support to keep premiums affordable and scale coverage. ARC currently covers around 50 million people across Africa and has paid over USD 170 million in claims.
• Hybrid and ecosystem products: As the parametric market matures, insurers combine parametric triggers with traditional indemnity coverage. For example, a hybrid cyclone cover might pay a fixed amount when wind speeds exceed a threshold (parametric) and reimburse additional property damage after assessment (indemnity). Carriers are also building ecosystems of data providers, brokers and reinsurance partners to scale parametric solutions.

Fast‑moving subsegments

Several subsegments of the insurance and risk‑transfer market are expanding rapidly:

1. Smallholder climate insurance: Pula and other micro‑insurance providers are scaling across Africa and Asia. Pula’s index‑based products now reach more than 19 million farmers, 41 % of whom are women; the average premium is only about USD 6.80 per season, and payouts totalling USD 92 million have already been delivered. A partnership between the Bayer Foundation and Pula aims to insure 10 million farmers by 2030, using EUR 10 million in premium support to unlock around USD 127 million in coverage.

2. Parametric flood and catastrophe insurance: In the United States, new parametric programmes are addressing losses from floods and other disasters. A pilot programme developed by Floodbase and Amwins offers parametric flood insurance to California municipalities; it uses rainfall and river‑height data to trigger payouts and is backed by an A+‑rated carrier. The product was launched after a season of severe floods where 80 % of losses were uninsured.

3. Regional risk pools: African Risk Capacity (ARC) covers droughts, floods and cyclones for member states. Since inception it has paid more than USD 170 million in claims and currently protects 50 million people. ARC’s parametric model enables rapid payouts (Malawi received USD 11.2 million after a drought), and the organisation plans to expand coverage to all 55 African Union countries.

4. Hybrid indemnity‑parametric products: Global insurers are combining parametric triggers with traditional coverage to address business interruption, renewable energy curtailment and other risks. According to industry analysts, the parametric insurance market could grow from around USD 16 billion in 2024 to USD 34 billion by 2033, with hybrid products driving adoption.

5. Digital MRV and data providers: Accurate risk models require reliable data. Start‑ups such as Floodbase, Cloud to Street and JUA are using satellite imagery, machine learning and internet‑connected sensors to monitor hazards and trigger payouts. Data platforms also support verification of avoided losses, which can be used to generate premium discounts or carbon credits. Digital monitoring and reporting systems reduce verification costs and improve transparency, similar to their use in carbon markets.

What's working

The most successful insurance and risk‑transfer initiatives share several characteristics:

• Rapid payouts and transparent triggers: Parametric products deliver funds quickly because triggers are objective and verifiable. Floodbase’s policy for California cities pays out automatically when rainfall or river gauges exceed thresholds. Farmers insured by Pula receive payouts within days of a drought or pest outbreak thanks to satellite‑based triggers.
• Scalable distribution channels: Pula reached millions of farmers by partnering with governments, agribusinesses and micro‑finance institutions. They bundle insurance with seed or fertiliser purchases and leverage mobile platforms for enrollment and claims. The Bayer Foundation’s programme uses premium subsidies to scale adoption.
• Risk pooling and diversification: Programmes like ARC demonstrate the benefits of regional risk pools; spreading risk across multiple countries allows for lower premiums and larger coverage. ARC’s payouts have helped member governments respond swiftly to disasters.
• Ecosystem collaboration: Insurers are building ecosystems with reinsurers, data providers and governments to develop products and share risk. Hybrid products that combine parametric triggers with indemnity coverage provide more comprehensive protection and attract corporate customers.

What isn't working

Despite these successes, significant challenges remain:

• Protection gaps remain large: Even in developed markets, most flood losses are uninsured. In many emerging economies, less than 10 % of assets are insured. Products targeted at low‑income households face affordability constraints and require continued premium subsidies.
• Basis risk and trust issues: Parametric policies can suffer from basis risk — when the trigger is met but actual losses differ from payouts. Managing expectations and designing triggers that closely correlate with losses are essential. Transparent communication and third‑party monitoring build trust.
• Regulatory uncertainty: Insurance regulation can hinder innovation. Many jurisdictions lack clarity on parametric products; in some countries insurers cannot sell policies with non‑indemnity triggers. Licensing requirements vary and can delay product roll‑out.
• Limited data: Parametric insurance relies on high‑quality weather and disaster data. In many emerging markets, observational networks are sparse. Investing in meteorological stations and digital MRV systems is critical to scale.

A framework for sustainability leads

The following framework helps sustainability leads assess insurance and risk‑transfer solutions:

1. Assess hazard exposure and vulnerability: Compile hazard maps (flood, drought, cyclone, wildfire, etc.) and quantify potential economic losses. Identify critical assets (infrastructure, crops, homes) and population groups most at risk. This baseline informs the scale and type of insurance required.
2. Define objectives and triggers: Decide whether the goal is rapid liquidity (e.g., financing emergency response) or income protection (e.g., crop yields). For parametric products, work with insurers and data providers to design triggers based on credible indicators such as rainfall thresholds, soil moisture indices or satellite flood extents. Validate triggers against historical loss data to minimise basis risk.
3. Select delivery channels and partners: Choose distribution channels that reach the intended beneficiaries. For smallholders, partner with cooperatives, input suppliers or mobile network operators. For municipalities or utilities, engage brokers and reinsurers who can structure and syndicate risk. Public or philanthropic premium support may be needed to ensure affordability.
4. Integrate with resilience programmes: Insurance should complement wider resilience measures (e.g., early warning systems, infrastructure upgrades, regenerative farming practices). Policyholders can be incentivised to adopt risk‑reducing behaviours through premium discounts or bundled services.
5. Plan for monitoring and evaluation: Establish systems to monitor triggers and verify outcomes. Digital MRV platforms can provide near real‑time data, reduce verification costs and support transparency. Collect feedback from beneficiaries to adjust product design.
6. Ensure governance and equity: Engage local communities and stakeholders in product design and distribution. Ensure that payouts are delivered fairly and that vulnerable groups (e.g., women farmers, Indigenous communities) have equal access to insurance. Build capacity for financial literacy and climate awareness.

Fast‑moving segments to watch

Sustainability leads should keep an eye on these developments over the next 12–24 months:

• Micro‑insurance at scale: Pula and other providers are expanding into new crops (e.g., coffee, cocoa) and regions in Asia and Latin America. Partnerships with development banks and agribusinesses could unlock millions of new policies.
• Climate risk insurance for cities: Urban centres in Asia and Africa are seeking parametric covers for floods and heatwaves. Projects similar to the California pilot are emerging in India and Nigeria, often bundled with infrastructure upgrades.
• Hybrid renewable energy insurance: New products protect renewable energy producers from resource variability (e.g., low wind or solar irradiance). These covers can smooth revenues and improve financing terms for clean energy projects.
• Parametric insurance for nature‑based solutions: There is growing interest in insuring coral reefs, mangroves and forests to fund rapid restoration after storms. Insurance payouts can trigger restoration efforts and provide co‑benefits such as biodiversity and tourism.
• Data‑driven underwriting: Advances in AI and remote sensing are improving risk models. Insurtech start‑ups offer platforms that monitor exposures in real time, enabling dynamic pricing and risk mitigation.

Action checklist for sustainability leads

1. Map your risk landscape: Identify priority hazards and assets. Use hazard maps, climate models and community surveys.
2. Engage insurers early: Consult with insurers or brokers to understand available products and customise triggers. Consider both parametric and hybrid options.
3. Secure partnerships and subsidies: For micro‑insurance, partner with NGOs, cooperatives and development agencies to subsidise premiums and reach scale. For municipal covers, build coalitions with regional governments and reinsurers.
4. Invest in data and monitoring: Support the deployment of weather stations, river gauges and satellite monitoring systems. Explore partnerships with digital MRV providers.
5. Develop implementation capacity: Train local agents and extension officers to explain products, collect premiums and process claims. Build governance frameworks to manage payouts transparently.
6. Review and iterate: After each season or event, evaluate the product’s performance. Adjust triggers, coverage levels and outreach strategies based on feedback and data.

FAQ

How do parametric insurance payouts differ from traditional insurance?

Traditional indemnity insurance reimburses actual losses after damage has been assessed, which can take months and involve disputes over valuations. Parametric insurance pays a fixed amount when a predefined trigger is met, regardless of the actual loss. This enables faster payouts and reduces transaction costs. However, basis risk remains — the payout may not match the real loss, so careful trigger design is essential.

Are parametric premiums more expensive than indemnity premiums?

Not necessarily. While parametric products cover a broader range of scenarios, they can be cost‑competitive because administration costs and claims investigations are lower. In micro‑insurance schemes, premiums are often subsidised by donors or governments. Pula’s average premium is around USD 6.80 per season, demonstrating affordability when products are scaled.

How can we ensure that insurance benefits vulnerable communities?

Successful programmes involve local stakeholders in the design and distribution of policies. Premium subsidies, simplified enrollment through mobile phones and partnerships with local cooperatives can ensure inclusion. Monitoring systems should track who receives payouts and evaluate impacts on livelihoods. Programmes like Pula have reached millions of farmers, including 41 % women.

What kinds of risks can parametric insurance cover?

Parametric products originally focused on weather‑related catastrophes such as hurricanes, droughts and earthquakes. Today they also cover agricultural pests, business interruption, renewable energy resource variability and even pandemic‑related event cancellations. Trigger design is flexible as long as the parameter is objective and measurable.

Sources

• World Economic Forum. (2024). How parametric insurance can fill climate protection gaps. WEF.
• Insurance Business Magazine. (2024). Parametric insurance enters the mainstream. Insurance Business.
• SNS Insider. (2024). Parametric insurance market size and forecast 2024–2032. SNS Insider.
• Bayer Foundation & Pula. (2024). Partnership announcement: Insuring 10 million smallholder farmers by 2030. Bayer Foundation Press Release.
• Pula Advisors & UNHCR. (2024). Index-based climate insurance for smallholder farmers: Program overview. Pula Advisors.
• TIME. (2024). TIME 100 Climate: African Risk Capacity and sovereign risk pooling. TIME.