Data story: the metrics that actually predict success in Insurance & risk transfer

In 2024, global natural catastrophe losses reached $320 billion—the third most expensive year on record—yet only $140 billion was covered by insurance, leaving a protection gap of $181 billion that represents both systemic risk and untapped market opportunity. This 44% coverage rate, while higher than the historical average, reveals the fundamental challenge facing climate risk transfer: the metrics that predict success in this sector differ dramatically from traditional insurance benchmarks, and organizations that fail to measure what matters will either underprice existential risks or miss the climate adaptation opportunity entirely.

Why It Matters

The insurance industry sits at the nexus of climate adaptation and financial stability. According to Swiss Re's sigma 1/2025 report, insured losses have grown at 5-7% annually in real terms over the past decade, with climate-attributed losses rising from 31% to 38% of total insured losses—a 6.5% annual growth rate compared to 4.9% for all losses. This acceleration has profound implications for risk transfer mechanisms.

The protection gap—the difference between economic and insured losses—represents approximately $181 billion annually in unaddressed climate risk exposure. Munich Re's 2024 analysis shows that 97% of insured losses now stem from weather-related catastrophes, up from 85% a decade ago. Traditional actuarial models built on historical loss distributions are increasingly unreliable as climate change alters the frequency and severity of extreme events.

For emerging markets, this gap is even more pronounced. The Climate Risk Insurance Market was valued at $341 million in 2025 and is projected to reach $471 million by 2031, growing at 5.6% CAGR according to Intel Market Research. Meanwhile, the parametric insurance market—valued at $16.2 billion in 2024—is projected to reach $51.3 billion by 2034 at 12.6% CAGR, reflecting the rapid adoption of alternative risk transfer mechanisms designed specifically for climate volatility.

Key Concepts

The Core Insurance KPI Framework

Insurance risk transfer success hinges on understanding four interconnected metric categories: underwriting performance, claims efficiency, risk selection accuracy, and capital adequacy. Each category contains specific KPIs with distinct benchmark ranges that vary significantly by line of business and geographic exposure.

Combined Ratio: The foundational metric combining loss ratio and expense ratio. A combined ratio below 100% indicates underwriting profit before investment income. For climate-exposed property lines, benchmark ranges have shifted dramatically:

Line of Business	2020 Target	2024 Target	Top Quartile
Property Catastrophe	<95%	<90%	<85%
Flood	<100%	<95%	<88%
Wildfire	<98%	<92%	<85%
Parametric Climate	<85%	<82%	<78%

Basis Risk: Unique to parametric insurance, basis risk measures the gap between parametric trigger activation and actual economic loss. A policy that pays when rainfall exceeds 100mm may not capture losses from a 95mm event that still causes flooding due to saturated soil. Benchmark targets:

Trigger Type	Acceptable Basis Risk	Optimal Range
Rainfall Index	<25%	10-15%
Wind Speed	<20%	8-12%
Earthquake Magnitude	<15%	5-10%
Temperature Index	<30%	15-20%

Loss Adjustment Expense (LAE) Ratio: The cost of claims handling relative to total losses. For traditional indemnity insurance, LAE typically runs 8-15% of incurred losses. Parametric products, by eliminating loss adjustment, reduce this to near zero—a critical competitive advantage when scaled across portfolios.

Parametric Triggers and Payout Speed

Parametric insurance fundamentally redefines the claims process. Rather than requiring loss verification, payouts trigger automatically when predefined parameters are met. This creates a new category of performance metrics:

Trigger-to-Disbursement Time: The interval between event occurrence and payout delivery. Industry benchmarks:

Product Type	Traditional	Current Parametric	Best-in-Class
Hurricane	90-180 days	14-30 days	24-72 hours
Earthquake	60-120 days	7-14 days	24-48 hours
Flood	45-90 days	10-21 days	48-96 hours

Coverage Activation Accuracy: Percentage of events where trigger activation correctly identified meaningful economic impact. Optimal systems achieve 85-92% accuracy; below 75% indicates trigger calibration problems.

What's Working

Satellite-Enabled Real-Time Monitoring

The integration of satellite data, AI/ML modeling, and IoT sensors has transformed underwriting precision. Floodbase, for example, monitors flooding globally in near real-time using continuous 3-hour satellite updates, enabling parametric triggers that were impossible with ground-based measurement alone. The company now operates in 40+ countries with over 9,000 flood insurance policies enabled, partnering with Swiss Re Corporate Solutions, Liberty Mutual Re, and AXA Climate.

This technological infrastructure allows parametric products to cover previously uninsurable risks. California municipalities gained access to parametric flood insurance for atmospheric river events in October 2024 through a program developed by Amwins and Floodbase—the first of its kind in the United States. The 2023 California atmospheric rivers caused $5-7 billion in economic losses, with 80% uninsured, demonstrating the protection gap that parametric solutions can address.

Alternative Capital Integration

The catastrophe bond market reached $45 billion in outstanding capacity in 2024, with $16 billion in new issuance during 2023 alone. This alternative capital provides crucial capacity supplementation as traditional reinsurance faces climate-driven pressure. Swiss Re and Descartes Underwriting partnered with Twelve Capital to launch a dedicated parametric ILS fund, creating a new channel for institutional investors to access climate risk premium.

Descartes Underwriting exemplifies the model: the company generated over $200 million in gross written premium in 2024, serving 200+ corporate clients across 60+ countries with 35+ parametric products. Their $161 million in total funding—including a 2022 Series B of $120 million led by Highland Europe—reflects investor confidence in technology-enabled risk transfer.

Climate Transition Alignment

Leading reinsurers are integrating climate metrics into their core operations. Swiss Re achieved a 96% reduction in portfolio emissions by 2024 against a 2019 baseline, ahead of schedule for 2025 targets. Their internal carbon levy of $134 per tonne CO₂ (rising to $200 by 2030) creates financial incentives for decarbonization while funding the transition from carbon avoidance to carbon removal. Munich Re released the first combined non-financial statement under European Sustainability Reporting Standards (ESRS) in 2024, setting new transparency benchmarks.

What's Not Working

Traditional Actuarial Models Under Stress

Historical loss data—the foundation of traditional pricing—increasingly fails to predict future losses. The 2024 Los Angeles wildfires generated $30-40 billion in insured losses (estimates still rising), yet occurred in areas where historical models suggested lower risk. The California FAIR Plan required a $1 billion bailout, while State Farm and Allstate withdrew from high-risk zones, with non-renewals up 203% from 2018-2022 in fire-prone areas.

This model failure extends globally. Munich Re identified that 57% of 2024 losses came from secondary perils—severe thunderstorms, floods, and wildfires—rather than traditional peak perils like hurricanes and earthquakes. These secondary perils are harder to model because they lack the same historical datasets and geographic concentration as primary catastrophes.

Basis Risk Communication Failures

Parametric insurance adoption faces persistent challenges around buyer understanding. Policyholders expect coverage to match actual losses, but parametric triggers inherently create gaps. When a hurricane makes landfall 20 miles from the trigger location, or wind speeds peak at 72 mph against a 75 mph threshold, the mismatch erodes trust even if the product functioned as designed.

Industry surveys suggest 40-60% of first-time parametric buyers express surprise at basis risk outcomes, indicating systematic communication failures during sales. This education gap slows adoption and increases lapse rates after non-payment events.

Regulatory Fragmentation

Tax treatment and insurance classification vary significantly by jurisdiction, creating barriers to cross-border parametric deployment. In some markets, parametric products are classified as derivatives rather than insurance, affecting capital treatment, consumer protections, and distribution channels. The NAIC's March 2024 Climate Resilience Strategy represents progress in the US, but global harmonization remains distant.

Key Players

Established Leaders

Swiss Re — The world's second-largest reinsurer with approximately $44 billion in premiums, Swiss Re has pioneered climate risk transfer innovation including carbon credit insurance with goodcarbon, parametric solutions for earthquakes and cyclones, and comprehensive sustainability reporting under ESRS and TCFD frameworks.

Munich Re — The largest reinsurer globally with 13.5% market share, Munich Re maintains 125+ years of windstorm reinsurance expertise and operates interdisciplinary teams of climate, geo, and data scientists for natural catastrophe R&D. Their net-zero by 2050 commitment covers both insurance and investment portfolios.

AXA Climate — The climate advisory and insurance unit of AXA Group, providing parametric products for agriculture, renewable energy, and municipalities. AXA has divested an estimated $23 billion from coal companies as part of broader decarbonization efforts.

Lloyd's of London — The specialty insurance market provides crucial capacity for climate-exposed risks, with syndicates developing innovative parametric structures and serving as a hub for alternative capital deployment.

Emerging Startups

Descartes Underwriting — Paris-based MGA with $200M+ gross written premium, 230+ employees including 50+ engineers, and operations across 60+ countries. Their technology platform combines satellite data, AI modeling, and 150+ risk modeling experts.

Floodbase — Founded by Bessie Schwarz and Dr. Beth Tellman, this platform monitors flooding globally in near real-time, enabling parametric triggers in 40+ countries with backing from Lowercarbon Capital and Ecosystem Integrity Fund ($17 million total raised).

Arbol — Blockchain-based parametric platform specializing in weather derivatives and agricultural coverage, using smart contracts for automated payouts.

Global Parametrics — Focus on emerging markets with partnerships across Africa and Asia for smallholder farmer coverage and sovereign risk transfer.

Key Investors & Funders

Lowercarbon Capital — Led Floodbase's $12 million Series A, backing climate adaptation infrastructure.

Highland Europe — Led Descartes Underwriting's $120 million Series B at $500 million valuation.

Battery Ventures — Strategic investment in Descartes Underwriting in 2025, with former Guidewire CEO Marcus Ryu joining the board.

USAID PREPARE Initiative — Government funding supporting parametric insurance deployment in vulnerable countries, including Mozambique and Malawi smallholder farmer programs.

Examples

Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC): Established in 2007, CCRIF provides parametric hurricane, earthquake, and excess rainfall coverage to Caribbean and Central American governments. The facility has made 63 payouts totaling over $260 million since inception, with payouts typically delivered within 14 days of triggering events. Their multi-country risk pooling model reduces premium costs by 40-50% compared to individual country coverage, demonstrating how regional approaches can overcome scale barriers.

African Risk Capacity (ARC): A specialized agency of the African Union, ARC has provided drought coverage via satellite NDVI monitoring for over a decade. The program uses the Africa RiskView software to estimate drought impacts on vulnerable populations, enabling pre-arranged finance before humanitarian crises develop. ARC's track record demonstrates that parametric triggers calibrated to agricultural impact—rather than raw rainfall—can reduce basis risk while maintaining payout speed.

Swiss Re and goodcarbon Carbon Credit Insurance: Launched in 2024, this first-of-its-kind product insures long-term carbon credit purchases against project non-delivery risk, with in-kind replacements for defaults. The structure addresses a critical barrier to voluntary carbon market scaling: counterparty risk on multi-decade afforestation and reforestation commitments. By applying parametric-style triggers to verification outcomes, the product creates a new category of climate finance insurance.

Action Checklist

• Audit current portfolio combined ratios by climate exposure category; identify lines where 2020 benchmarks no longer apply
• Evaluate basis risk for all parametric products using historical trigger-to-loss correlation analysis (minimum 10-year backtesting)
• Implement real-time monitoring integration with at least one satellite data provider (Floodbase, Descartes, or equivalent)
• Develop policyholder education materials explicitly addressing basis risk expectations before binding coverage
• Assess alternative capital integration opportunities through ILS funds or catastrophe bond sponsorship
• Review regulatory classification of parametric products across operating jurisdictions for tax and capital treatment consistency
• Establish trigger-to-disbursement time SLAs with target of 72-hour maximum for weather perils
• Build climate transition metrics into underwriting guidelines, including Scope 3 exposure assessment for large commercial risks

FAQ

Q: How do I calculate appropriate basis risk tolerance for parametric products? A: Basis risk tolerance depends on the coverage purpose. For liquidity bridge products designed to provide immediate cash flow while traditional claims are processed, higher basis risk (20-30%) is acceptable because the parametric payout supplements rather than replaces indemnity coverage. For standalone parametric products, target 10-15% basis risk through multi-trigger structures, location-specific calibration, and historical validation. Always backtest trigger performance against at least 20 years of event data where available.

Q: What metrics distinguish successful parametric programs from failed ones? A: Three metrics predict program success: First, trigger activation rate—programs with 0% activation over 5 years struggle with renewal (buyers question value), while >50% activation suggests mispricing. Target 8-15% annual activation for weather perils. Second, basis risk satisfaction—survey policyholders after both payment and non-payment events; satisfaction scores below 6/10 after non-payment events predict lapse. Third, attachment point calibration—triggers set too high never pay, too low erode margins. Optimal attachment should approximate a 5-10 year return period for most commercial lines.

Q: How should traditional insurers integrate parametric products into existing portfolios? A: Start with hybrid structures: parametric layers above traditional deductibles, or parametric liquidity products alongside standard property coverage. This limits cannibalization while demonstrating value. Monitor attachment point overlap to avoid coverage gaps. Most successful integrations begin with a single peril (typically named windstorm or earthquake) in a defined geography before expanding. Ensure systems can track parametric and indemnity exposures jointly for aggregation management.

Q: What role does reinsurance play in scaling parametric insurance? A: Reinsurance provides essential capacity and volatility management. Primary carriers typically retain 10-30% of parametric risk, ceding the remainder through quota share or excess-of-loss structures. For emerging perils without historical reinsurance markets, alternative capital through ILS provides capacity. The catastrophe bond market's $45 billion capacity increasingly supports parametric structures. Reinsurance also provides validation: if reinsurers price a parametric product favorably, it signals trigger quality and data integrity.

Q: How do climate disclosure requirements affect insurance risk transfer strategies? A: TCFD, ISSB, and EU CSRD requirements are creating new demand for quantified climate risk metrics. This benefits insurers with sophisticated climate modeling capabilities—their underwriting data becomes valuable for corporate disclosures. Simultaneously, disclosure requirements expose protection gaps, driving demand for coverage. Insurers should position climate analytics as value-added services while developing products aligned with disclosed risk categories. The transition creates competitive advantage for insurers who can provide both risk quantification and risk transfer.

Sources

• Swiss Re, "sigma 1/2025: Natural catastrophes: insured losses on trend to USD 145 billion in 2025," January 2025
• Munich Re, "Climate change is showing its claws: The world is getting hotter, resulting in severe hurricanes, thunderstorms and floods," January 2025
• Intel Market Research, "Climate Risk Insurance Market Outlook 2025-2032," 2025
• Globe Newswire, "Parametric Insurance Market Assessment 2025-2034: Industry Set to Reach $51.3 Billion by 2034," May 2025
• World Economic Forum, "How parametric insurance is building climate resilience," January 2025
• Aon, "Using Parametric Insurance to Match Capital to Climate Risk," 2024
• Swiss Re Sustainability Report 2024, "Swiss Re's Climate Transition Plan," 2024
• Descartes Underwriting, "The Rise of Parametric Insurance: Trends and Insights," 2024
• Floodbase, "Amwins and Floodbase Unveil Groundbreaking Flood Insurance Program for California Municipalities," October 2024
• PwC, "Climate risk and insurance: the case for resilience," 2024