Guy Carpenter has announced a new research initiative to explore parametric insurance solutions for addressing wildfire and hurricane risks in California and Florida.
The study aims to evaluate how parametric models could enhance financial resilience for communities facing natural catastrophes.
The research involves collaboration between Guy Carpenter’s Parametric Advisory and Public Sector teams and academic partners, including Florida International University’s Institute of Environment, the Climate Adaptation Center in Sarasota, the Center for Coastal Climate Resilience at UC Santa Cruz, and the University of Michigan.
The project will examine the feasibility of a “community-based parametric reciprocal exchange,” an insurance model where groups of homeowners or small businesses pool their resources to share risks. Under this model, payouts are triggered automatically when predefined parameters, such as specific wind speeds or rainfall levels, are met.
The study aims to assess the regulatory landscape for parametric reciprocal exchanges, identify effective communication strategies to highlight their value, and engage with communities to create a foundation for future research and pilot initiatives.
Guy Carpenter plans to integrate these findings into its ongoing efforts to address the growing insurance protection gap in the US.
Dr Guillermo Franco (pictured above), global head of catastrophe risk research at Guy Carpenter, emphasized the importance of addressing underinsurance in disaster-prone regions. Many households and small businesses lack adequate coverage for rebuilding and recovery due to affordability issues, limited risk awareness, or behavioral biases.
“Community-based catastrophe insurance programs like parametric reciprocal exchanges, may constitute an innovative way to help close this protection gap in the US and speed up payments to aid recovery, which will enhance the financial resilience of communities,” Franco said.
The project aligns with Guy Carpenter’s broader advocacy for community-based catastrophe insurance (CBCI). The CBCI framework was developed in partnership with the Wharton Risk Management and Decision Processes Center and Marsh McLennan, highlighting the company’s commitment to innovative approaches in risk management.
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