Increasing severe weather spurs demand for parametric insurance: Swiss Re Corporate Solutions’ Megan Linkin

In a Reinsurance News interview, Megan Linkin, Expert Structurer at Swiss Re Corporate Solutions, the global reinsurer’s commercial insurance arm, discussed the growing demand for parametric insurance amid an uptick in severe weather events and subsequent losses.

The surge in interest, she says, is tied directly to the increasing frequency and severity of natural disasters, particularly hurricanes.

“Since 2020 — which was a hurricane season that saw 12 named storms make landfall on the US coast — there really hasn’t been a slowdown in activity,” Linkin explained.

“There was Hurricane Ida in 2021, obviously Hurricane Ian in 2022, Hurricane Idalia in 2023, and then Hurricanes Helene and Milton in 2024.”

This consistent storm activity has exposed the limits of traditional coverage. “More and more corporates, more and more public entities, are realising that they simply have exposure that’s just not covered by their traditional insurance programme,” she added.

That’s where parametric insurance comes in—offering payouts based on measurable event characteristics like wind speed, rather than physical damage assessments.

According to Linkin, parametric coverage is particularly useful in scenarios where businesses suffer financial losses without direct property damage.

“Let’s say there’s a hurricane forecast to come in your general direction, and you shut down your business. You don’t wind up having any physical damage, but you do have losses because you’ve lost revenue from your business being shut down. If the storm is intense enough to result in a payout, that is an eligible expense.”

She points to the hospitality industry in Puerto Rico post–Hurricane Maria as a notable example. “Some hotels were newer, built to high standards, but the issue was—were people going to want to come in the aftermath of the storm? That kind of disruption to projected revenue is something parametric insurance can address.”

The appeal isn’t limited to tourism. Parametric insurance has also drawn interest from construction companies working on multi-year projects in catastrophe-prone areas.

Linkin explained, “We have seen some construction companies who are working on a long-term project that is exposed to a certain type of natural catastrophe inquire about parametric insurance to help them jump start their activities after the event, or maybe offset the cost of increased materials, if after an event there’s some local inflationary pressure or the like.”

One of the biggest advantages of parametric solutions is speed of payout when compared to traditional forms of coverage. “All of our claims have been settled in North America within 30 days, so we’re able to get the insured’s cash in hand in the immediate aftermath of the event and allow them to use that money to address the immediate post event concerns and start to recover, hopefully more quickly.”

That quick liquidity is crucial. “The first 90 days are the most critical after a natural disaster to start recovery efforts,” Linkin emphasised, citing multiple studies read during her time working on Swiss Re’s Public Sector Solutions team.

Parametric insurance is also proving useful in a tight reinsurance market. “We’ve seen some clients say, ‘I used to get a billion in the market. Now I can only get 700 million.’ In such cases, she explained, they may turn to a $50 million parametric policy to make up the shortfall. “This is going to cover you for the things that you can’t get coverage for otherwise,” she added.

Asked about basis risk—the possibility that the payout doesn’t match the actual loss—Linkin is pragmatic. “Every insurance policy is going to have basis risk, right? You’re going to have within a traditional insurance policy, exclusions, deductibles, sub limits, and there’s to be a claims adjuster, which opens you up to some subjectivity.”

Swiss Re Corporate Solutions reduces basis risk in parametric policies through experience and careful design.

“We’ve been doing this for close to two decades. Our claims data tells us what types of events are truly disruptive to clients, so we know where to set the parameters,” she explains. “It’s really critical that we sit down with the client and the broker to understand what they’re trying to solve for.”

The design of the coverage has also evolved. “Back in the day, there was kind of a tendency for the solutions to be designed where it was all or nothing,” she recalled.

“Now, as time has gone on, we very carefully designed these programmes to have partial payouts at lower intensities, and then that increases until it reaches a certain intensity where they’re eligible for a full payout.”

In a world where weather risks are intensifying, Linkin sees parametric insurance as an essential tool in the risk manager’s toolkit—not a replacement for traditional insurance, but a flexible complement that ensures organisations aren’t caught off guard.

“Losses go well beyond just physical property damage,” she added. “And parametric insurance can really be leveraged to address those.”

Currently, forecasters are expecting an above-average level of activity for the 2025 Atlantic hurricane season, which supports Linkin’s view that activity hasn’t slowed. However, it’s important to remember that for insurers and reinsurers it’s all about intensity and location of landfall, so an above-average season by no means ensures heavy economic and insured losses.

This website states: The content on this site is sourced from the internet. If there is any infringement, please contact us and we will handle it promptly.