Parametric market should prove stable in 2024, despite losses of 2023: WTW

The marketplace for parametric insurance and reinsurance is expected to remain stable in 2024, while activity levels are anticipated to be buoyant, according to broker WTW.

In the segment of insurance market solutions that get bundled as “alternative risk transfer”, WTW said that parametric risk transfer was one of the most traded products in 2023.

“We expect this to continue in 2024 due to continuing pressure on lines such as property and for clients who have had significant losses,” the broker explained.

Looking into 2024, WTW forecasts that parametric nat cat covers will see price developments tat range from -5% to +10%, while non-nat cat parametric covers are expected to be flat to +10%.

Pricing has been relatively stable across the range of alternative risk transfer ART products, WTW says, and while it seems there will be outliers with price increases ahead, it appears most will be down to loss experience in parametric risk transfer.

WTW said that “many parametric markets paid claims in 2023” with losses from tropical cyclones, wildfires, hail storms, and flooding seen.

These losses drive two principal effects in the parametric insurance and risk transfer marketplace, WTW explained.

Firstly, because more clients have now experienced first-hand the “simplicity and speed of claim payments”, this helps to “reinforce the original decisions to adopt the approach,” WTW said.

Secondly, these losses “are likely to drive some premium increases and capacity constraints in 2024,” the broker continued.

Positively, the parametric risk transfer market continues to be a place for innovation, which is helping to drive more options for protection buyers and more opportunities for risk capital providers.

WTW noted that increasingly parametric features are being embedded into some traditional lines of insurance, while new data sources, sensor and internet of things integration for settlement, are helping to drive continuous improvement of parametric triggers.

As well, WTW is seeing an increasing drive to bring parametric triggers to new lines of business, especially risks such as cyber and pandemics.

A stable market, with price increases largely in reaction to losses and growing awareness of the parametric product offering, while new offerings are innovated on, all sounds like a very healthy baseline for the parametric insurance and risk transfer sector to take into 2024 and beyond.