How can innovative solutions such as parametric blankets help businesses address long-term challenges such as energy transformation, supply chain disruptions, data digitization and CSR (Responsibility Societal of Companies)?
The world is witnessing a wave of short-term and long-term trends that are destined to drastically shape the future of our society and our planet.
Energy transformation, supply chain optimization, data digitization and CSR-related requirements are prime examples of how a rapidly changing environment poses many challenges to those affected. While obstacles create opportunities and, therefore, investments, the public and private sectors are faced with extreme uncertainty on the one hand and the need to act on the other.
“In this context, the financial sector must play an active role in encouraging innovation, enabling the use of new technologies and providing the level of support required by such a complex dynamic context” emphasizes Marco Adamo.
At the same time, the corporate world must lead the way and be the initial focus, given its enormous potential for impact.
Innovative insurance solutions to meet business challenges
The insurance industry has long been seen as reluctant to change. The results of this attitude are evident in terms of industry resistance: customers prefer this situation and are looking for other solutions.
Nevertheless, there is an abundance of data, skills and momentum to enable the necessary changes to be implemented. While traditional underwriting remains the primary form of risk taking, companies are increasingly adopting other approaches to better meet their needs.
An example can be found in the climate action space. The Swiss Re Institute estimates that rising temperatures could reduce global GDP by 14%, or $23 trillion, by 2050 compared to a world without climate change. Public and private sectors are now rushing to halve CO emissions2 by 2030. However, many of the technological advances needed to combat the planet’s recovery will introduce new or existing risks.
Traditional underwriting is likely to play a key role in tackling Scope 1 emissions barriers, as companies’ core production processes evolve accordingly. However, the challenges posed by Scope 2 and 3 emissions may require a more advanced approach and the demand for innovative solutions may also increase.
Parametric insurance transforms the approach to risk transfer
Based on a predefined index and a pre-agreed payout structure, parametric hedging ensures transparency and speed of payout, solving uncertainty and liquidity issues.
For example, the abundance of data on natural disasters (NatCat), combined with vast expertise inside and outside the insurance industry, has enabled NatCat parametric coverage to increase in recent years. .
However, does this also apply to these new risks related to energy transformation, disruptions in the supply chain, digitalization of data or requirements related to CSR? Until now, when there was data, there was the possibility of parametric insurance, but what happens when there is no historical data available?
New technologies and innovation are, by definition, accompanied by a lack of historical data. In these specific cases, there is no basis for retrospective approaches that combine exposure and experience. Therefore, non-traditional, forward-looking perspectives are becoming increasingly necessary.
“In this landscape, full alignment between the insurance industry and businesses is fundamental to the development of suitable propositions” says Marco Adamo.
Can supply volumes be translated as an index?
Would sensors and digital twins open the door to reliable and verifiable data?
What parameters could be used to meet CSR requirements? What will happen if a supplier fails to meet net zero targets?
There is not yet a good answer to these questions, but a regular dialogue between the insurer, the courtier and the insured is certainly the first step in implementing an innovative approach.
Contact us today to learn more about our alternative risk transfer solutions that go beyond traditional insurance.
Content provided by Swiss Re Corporate Solutions