Guy Carpenter said it is starting a research project to explore the use of parametric insurance solutions in California and Florida for wildfire and hurricane risks.

The effort will focus on the use of a “community-based parametric reciprocal exchange,” the reinsurance broker said.

“Insurance plays a critical role in recovery from natural disasters, but many households and small businesses do not have sufficient coverage to fund repair and rebuilding due to affordability of products, limited risk awareness, or behavioral biases in decision-making,” said Guillermo Franco, global head of cat risk research at Guy Carpenter, a part of Marsh McLennan. “Community-based catastrophe insurance programs like parametric reciprocal exchanges, may constitute an innovative way to help close this protection gap in the U.S. and speed up payments to aid recovery, which will enhance the financial resilience of communities.”

The research will be conducted in collaboration with Guy Carpenter’s Parametric Advisory and Public Sector teams, the Institute of Environment at Florida International University, the Climate Adaptation Center in Sarasota, the Center for Coastal Climate Resilience at UC Santa Cruz, and the University of Michigan. The goal, according to Guy Carpenter, is to gauge the regulatory environment for parametric reciprocal exchanges, identify best practices in communicating the value of such a model, and engage with local communities to establish the foundations for larger scale research and pilot projects.

This research project dovetails with Guy Carpenter’s larger work in advocating for community-based catastrophe insurance (CBCI), a concept it developed in partnership with the Wharton Risk Management and Decision Processes Center and Marsh McLennan.

Source: Guy Carpenter