A clear indicator of this shift is the growth in insurers’ investment in alternative capital. Aon Securities calculates that global alternative capital lept from $24 billion in 2010 to $115 billion in 2024: a clear sign of the industry’s pivot toward broader capital strategies. The cost of damage from systemic threats such as ransomware is forecast by Cybersecurity Ventures to exceed $275 billion a year by 2031. Reflecting the impact of climate change, global inflation-adjusted insured losses from natural catastrophes grew almost 6% a year between 1994 and 2023, according to Swiss Re.

Across the entire property and casualty (P&C) space, carriers are wrestling with the need to protect profitability and capital in the light of spiraling claims costs while keeping their product affordable. This is especially true in personal lines, says Sean O’Neill, head of Bain & Company’s global insurance practice.

“Commercial P&C carriers have benefited from a hard market [a period when premiums increase, coverage terms are restricted, and capacity for most types of insurance decreases] the past few years,” he notes, “and are now increasingly focused on managing through earnings volatility as the market softens. In life insurance, the issue is often more one of accessibility: how to increase relevance and make it easier for non-affluent customers to understand and buy the product.”

Carriers are increasingly turning to insurance-linked securities (ILS), including collateralized reinsurance and sidecars, to improve risk-adjusted returns and increase capacity.

“There will be more cyberrelated losses as the economy becomes increasingly connected.”

Sean O’Neill, Head of Global Insurance, Bain & Company

These concerns are also visible in headline capital figures. According to Aon, global reinsurer capital reached a record $715 billion in 2024, driven by strong retained earnings and an expanding catastrophe bond market that saw outstanding bond limits grow to nearly $50 billion as of first-quarter 2025.

“Reinsurance capital continues to grow and keep pace with increasing demand,” observes George Attard, CEO, Reinsurance Solutions, Asia Pacific at Aon. “Heading into the mid-year renewals, we expect over $7.5 billion of additional US property catastrophe limit demand, mostly due to a healthier Florida market and the depopulation of the state windstorm insurer Citizens. We also anticipate some additional reinsurance purchasing from US national carriers looking to mitigate further major net losses during 2025.”

Available capital does not eliminate risk or uncertainty, however. Attard highlights the continuing impact of geopolitical and macroeconomic volatility on exposure modeling, inflation assumptions, and investment returns. Further, catastrophe losses during the remainder of 2025, including the Atlantic hurricane season, may yet impact future market conditions beyond the US.

Aon’s April 2025 Reinsurance Market Dynamics Report anticipates that this year is likely to record the highest firstquarter losses from natural catastrophes in over a decade. At between $11 billion and $17 billion, ceded losses from the Los Angeles wildfires have absorbed 25% to 33% of major reinsurers’ annual catastrophe allowances, which could affect how some come to the market at mid-year.

“June and July are key renewal dates for insurers in the US, Australia, and New Zealand, which along with Japan, are among the world’s largest markets for property catastrophe reinsurance,” the Aon report notes. Despite early-year losses, the broker expects broadly stable renewal dynamics, driven by continued capital inflows and unfulfilled reinsurer appetite.

Much of this capital flow is occurring through structured and alternative mechanisms. Growth in sidecar capital has contributed to broader buoyancy in the ILS market, with strong investor returns matched by persistent demand from originating insurers amid inflationary pressure and changing views of risk. Sidecars, however, are expected to post negative first quarter returns due to the Los Angeles wildfires.

The Asia Pacific region represents a particular opportunity for capital innovation. With low insurance penetration and material catastrophe exposure, the region is attracting increasing policy support and capital interest. Aon’s April renewals report notes that Hong Kong and mainland China are actively promoting the catastrophe bond market and more sophisticated regional sponsors are exploring sidecar structures to access third-party capital. In 2021, Aon structured and placed a $30 million catastrophe bond for China Re, the first to be issued from a Hong Kong-based special-purpose insurer.

In parallel, facultative reinsurance—coverage purchased by a primary insurer to cover a single risk or block of risks—has grown markedly. Recent renewals in Asia-Pacific and elsewhere have seen oversubscription and improved pricing as both new entrants and incumbents expand their appetite. The market is experiencing active competition from London and Singapore, Aon suggests, alongside growing capacity from managing general agents, consortiums, and facilities. Aon’s own Marlin APAC facultative facility, launched recently, offers up to $15 million per risk and is targeted at property and renewable energy exposures in the region.

Parametric policies also continue to receive attention, although the size of the market remains limited.

“Despite its long history, parametric insurance has yet to reach any significant scale in the industry,” Bain’s O’Neill explains, adding that climate change and associated perils may boost demand and that AI could be a powerful catalyst.

“This construct has the simplicity of getting payments paid faster through a dramatically simplified claims process,” he says.

“AI has the potential to reduce basis risk, or the difference between the actual loss and the stipulated value rate in the parametric construct. The more data that can be ingested and managed by AI, combined with the declining cost and increased power of computing, the more the potential to increase the fidelity of the models that underlie a parametric policy.”

Cyber has similar loss-pattern challenges to those caused by climate, according to O’Neill: “There will be more cyber-related losses as the economy becomes increasingly connected; some will be small, some large, and the range of possibilities is endless.”

The industry’s pool of capital is growing alongside an even steeper escalation in underlying risks. Climate volatility, cyber threats, geopolitical instability, and inflationary uncertainty are all expanding in scale and complexity, and despite growing capital availability, fundamental challenges persist; chief among them, price-to-risk misalignment.

In some regions, particularly those exposed to flood or wildfire risk, O’Neill notes, homeowners are exiting the insurance system altogether, threatening to create “insurance deserts” with broader economic consequences including risk to mortgage-backed securities.

In certain flood- or fire-prone regions, and for specific perils like terrorism and cyber, greater collaboration between public entities and insurers may be needed in the future, he argues.

“Given the affordability and accessibility challenges across many jurisdictions, the increasing size of the protection gap, which is approaching $2 trillion, and the increasing role the insurance industry needs to play in prevention, greater collaboration between insurers and public entities will be required,” O’Neill explains. “Participants walk a fine line to get the right balance in publicprivate partnerships and matching price to risk, without increasing moral hazard into risk-taking by businesses or consumers.”

There are other fine lines to walk in the current environment, with geopolitical uncertainty a key risk vector. President Donald Trump’s trade and policy stance, for instance, may continue to significantly influence global risk transfer dynamics. To navigate these pressures, some insurers are pursuing mergers and acquisitions as a means of reshaping their capital and risk portfolios.

Says O’Neill, “As insurers contemplate the need for a broader range of scenarios given market uncertainty, we are seeing aggressive M&A moves to re-shape their portfolios, such as Japanese life [insurer] acquisitions in the US, increased tie-ups and scale building in asset management in the US and Europe, and greater activity by private equity-backed consolidators: especially in distribution and insurtech.”

That figure is 27% above the 10-year average, according to a recent report by Gallagher Re, which estimates that natural perils – from wildfires in Los Angeles to flooding in Valencia to deadly landslides in Southeast Asia – created direct economic costs of $417 billion in 2024. Private and public insurance entities covered 37% of that total, with the US alone accounting for $117 billion in insurance losses.

Rather than hiking premiums or pulling out of high-risk markets completely, the industry aims to minimize future losses by working with reinsurers, brokers, and other industry experts while reaching out to local governments and environmental groups, climate and technology experts, and even international agencies.

“Pulling out of a market is not a decision that anyone is going to make lightly.”

Dale Porfilio, Insurance Information Institute

“No one country is going to solve this problem on its own,” says Maryam Golnaraghi, director of climate change and environment at The Geneva Association, a Zurich-based think-tank for the global insurance industry. “The solution is going to take all of society working at different levels and different stages to develop incentives and solutions.”

This month, the association is releasing a report based on nine months of collaborative effort between the industry, academic institutions, climate-risk modelling firms, mortgage and lending regulators, and international organizations. The document, which will lay out methods to safeguard access to home insurance amid the global surge in extreme weather risks, is focused on developed economies with mature insurance markets: Australia, Canada, the EU, Japan, the UK, and the US.

Financials at global insurers/reinsurers remain strong. Global reinsurer capital increased by $45 billion to $715 billion last year while reported equity rose by $38 billion to $600 billion, continuing a recovery that began in 2022, according to Aon, a global professional services firm.

“Higher retentions and tighter coverage again insulated reinsurers from the worst effects of the elevated natural catastrophe activity in 2024,” said Mike Van Slooten, head of market analysis for Aon’s reinsurance solutions in London, in a recent Aon report.

As part of the collaborative effort to keep the industry financially resilient, some industry stakeholders are zeroing in on climate risk solutions, says Peter Miller, president and CEO of The Institutes, a not-for-profit in Malvern, Pennsylvania, with expertise in risk management and insurance.

Global reinsurers, for example, are investing heavily in climate research and modelling capabilities to assist insurance brokers in developing specialized climate advisory services that help clients understand and mitigate their exposures. Industry associations are creating frameworks for climate risk disclosure and management while insurance technology firms are introducing data analytics and parametric products for climate perils. And ratings agencies continue to weave climate considerations into their assessment methodologies.

“The industry recognizes climate change as a systemic risk that requires significant adaptation,” says Miller. “Continuing business as usual would lead to market disruptions and coverage gaps. Industry leaders view climate change as a transformational force rather than just another risk factor. They’re investing in capabilities to understand, price, and manage climate risks while engaging with policyholders on adaptation measures.”

In the wake of a natural disaster, insurers are the “financial first responders,” says Dale Porfilio, chief insurance officer at the Insurance Information Institute (Triple-I), an insurance trade association. “We are here for that risk transfer and to make people whole.” Yet, the greater frequency and severity of natural disasters—from floods to hurricanes to wildfires—along with increased repair and rebuilding costs is spurring insurers in the US to collectively reassess their risk appetite for residential property.

“Can we continue to insure every single house in the way that we once did, based on the cost and the relative risk?” says Porfilio. As a risk-based product, policyholder premiums must reflect what losses are expected to be in the upcoming year. “Pulling out of a market is not a decision that anyone is going to make lightly.”

State insurance commissioners in the US, who can be elected officials, direct greater scrutiny to the pricing of residential property, he adds. Homes located along coastlines and waterways and in hills and canyons frequently carry greater exposure to natural disaster risks than commercial properties, which tend to be located inland and closer to central transportation areas.

Risk managers and insurance brokers are reaching out directly to these corporate clients with new products and expertise to help them understand climate adaptation and manage their risks.

“We help organizations become resilient to extreme weather, now and for the future, by leveraging our suite of climate adaptation capabilities,” says Nick Faull, London-based head of climate and sustainability risk at Marsh, a global insurance broker and risk management advisor. Marsh counsels executives to consider extreme weather events on two levels: assets and systems.

“How will assets, including buildings, people, and operations as well as emergency response processes, be impacted?” Faull says. Secondly, managers must determine how extreme weather events will impact the broader organization: “particularly through the impacts on suppliers but also on critical infrastructure, resources and ecosystem services, customers, and on the communities in which it operates. In addition, what impact will be changing regulations and capital provider expectations have?”

By comprehensively monitoring their supply chains—Marsh’s parent, Marsh McLennan, offers an AI-powered tool called Sentrisk—companies can better prepare for extreme weather events. As an example, Faull cites a UK company that learned a supplier, deep in its supply chain in Southeast Asia, was at high risk of flooding, leaving the company exposed to significant disruption.

“With better information, the company is able to build resilience into its supply chain to avoid future disruption,” he says.

In collaboration with Floodbase, a parametric flood expert, and Swiss Re Corporation Solutions, Aon launched a parametric insurance solution in February that promises to address and mitigate losses from hurricane-related storm surges along the US coast using a range of meteorological data sources. Rather than aligning pay-outs to traditionally adjusted physical damage, like an indemnity insurance product, Aon bases them on water height. Policyholders can select the level of pay-out they require for a certain level of storm surge, with a rate calculated accordingly. The proceeds can be used for any financial loss associated with the event, addressing a substantially broader set of exposures than traditional insurance.

Hurricane Helene was the single most devastating natural catastrophe of 2024, according to Aon’s 2025 Climate and Catastrophe Insight report, responsible for approximately $75 billion in economic losses, mainly due to US inland and coastal flooding. A parametric solution helps bolster existing levels of cover and provides liquidity, says Cole Mayer, head of parametric solutions at Aon. Used as a standalone product or with traditional and non-traditional insurance policies, it offers corporates more comprehensive protection, he says, noting that for some hurricane events, storm surge damage can account for more than one-third of the total loss cost. The industry is also turning to conservation groups and governments as key collaborative partners.

In Canada, Nature Force, which includes 15 insurers and Ducks Unlimited Canada, has invested in wetland restoration to reduce flood risk in urban communities, says Golnaraghi. Local and state governments can focus on risk-based land zoning, enforce updated building codes, and promote fortified building certification. Federal and national governments, in turn, can lay down standards of resilience that local and state officials must meet in their post-disaster aid programs and place a priority on constructing large-scale resilient infrastructure.

“Governments at all levels are crucial in scaling local resilience and collaborating with the insurance industry,” Golnaraghi says. “Together, they can develop a shared vision for hazard-prone areas where insurance challenges are rising due to an increase in unmitigated risks linked to growing exposure and vulnerability.”

For decades, they relied on long-term bonds—safe, steady, and predictable—to match their policy obligations. But as interest rates plunged following the 2008 financial crisis, traditional investment models no longer delivered sufficient returns.

Now insurers are embracing alternative investments like private debt, infrastructure, and real estate—often partnering with asset managers and private equity firms to boost yields. This shift is transforming the industry, raising both profit opportunities and regulatory concerns as insurers take on riskier, harder-to-value assets to increase investment returns.

“With interest rates way down after the Great Financial Crisis, the cost of insurers’ pre-2008 liabilities were still high,” says Ramnath Balasubramanian, global co-leader of the life insurance and retirement industry practice at McKinsey & Company. “Insurers needed to find ways to de-risk their balance sheets and deploy capital more efficiently.”

Slowly but surely, they are finding ways. The solution for most insurance companies has been twofold: Sell off swaths of high-cost legacy obligations to reinsurers to free up capital, and invest more of their premiums into alternative assets: most notably private debt with higher yields and risks than investment-grade bonds. Insurance companies across global markets have been building, buying, and partnering their way to better investment returns for the past decade.

Private equity firms in the US have been a major catalyst to transformation in the insurance industry globally. Big firms like Apollo Global Management, Brookfield Reinsurance, and KKR have launched or bought insurance companies since the financial crisis; others, like Blackstone and Carlyle, have taken minority stakes in other insurers.

The operating model is straightforward: Buy legacy books of insurance liabilities and reinvest the underlying assets into higher-yielding investments. Since the financial crisis, private equity firms have completed over $900 billion in transactions acquiring insurance liabilities worldwide, according to McKinsey research. They now have a 13% share of the US insurance market—up from 1% in 2012—and account for 35% of new sales of US fixed and fixed-index annuities, the consultancy reports.

“The search for yield was the motivation,” says Meghan Neenan, a managing director at Fitch Ratings, who provides ratings for asset managers. “The success they’ve had in terms of returns has been significant, and the migration in insurance portfolio profiles is still ongoing.”

Investing more in private markets and alternative assets arguably heightens insurance companies’ diversification, but it also increases risks. “Their investment portfolios are generally less liquid,” notes Neenan. Insurers’ demand for private loans—most of which have floating interest rates—has continued to grow as rates have risen.

Italian insurance giant Generali, on the other hand, is growing its asset management operations. The company has made several major acquisitions recently, including a deal to buy investment manager Conning from Cathay Life Insurance last year. Generali also paid $320 million for a 77% stake in MGG Investment Group earlier this year. The US firm is focused on direct lending to mid-market companies. Like a growing number of insurers, Generali is building out its own direct-lending platform.

In January, Generali announced a transformational deal, agreeing to merge its asset management operations with Natixis Investment Managers, owned by Groupe BPCE. The 50/50 joint venture will manage €1.9 trillion in assets, making it the ninth largest asset manager globally.

“The new entity would be ideally positioned to further expand its activities for third-party clients,” the insurer said in a January statement, “also thanks to Generali’s commitment to contribute a total of €15 billion in so-called seed money over the first five years to launch new initiatives and investment strategies in the alternative investments sector (particularly in private markets).”

As the private debt markets evolve into new areas like asset-based lending and equipment leasing, large asset managers will increasingly be leading the way. The big transactions recently between insurers and asset managers in Europe are only the most obvious sign of industry consolidation and restructuring. Smaller deals to reinsure liability risks and expand insurance investment platforms are happening across global markets.

Asia is the next frontier, particularly Japan, which has about $3 trillion in life and annuity reserves in force, according to the Society of Actuaries (SOA). To date, most of the activity there has been on the liability side of insurance company balance sheets as Japanese insurers become more comfortable with block reinsurance transactions. Notable recent deals include the reinsurance by KKR-owned Global Atlantic of a nearly $4 billion block of Manulife Japan whole life policies, and a ¥700 billion (about US$4.7 billion) block of Japan Post Insurance annuities by Reinsurance Group of America.

The SOA estimates that as much as $900 billion in Japanese insurance obligations could be reinsured in the coming years thanks to new regulations mandating higher capital reserves that come into effect this year.

The global insurance industry is still on a path of transformation. “I think we’re somewhere in the middle innings of this evolution,” says McKinsey’s Balasubramanian. “Many insurers are still determining whether they will build, buy, or partner for new investment capabilities, and the deals are now happening in both directions.”

All the activity is making insurance regulators’ jobs much harder. The assets backing insurance obligations have become more opaque and more difficult to value as companies have expanded their investment landscapes. The National Association of Insurance Commissioners (NAIC) in the US launched a task force in February to establish principles for updating risk-based capital solvency formulas for the industry.

“The extended low interest rate period that followed the Great Financial Crisis created an industry trend to search for yield in investment portfolios, resulting in a major shift in the complexity of insurers’ investment strategies, resulting in more liquidity risk than historically seen,” said Wisconsin Insurance Commissioner Nathan Houdek, a task force co-chair, in an NAIC statement.

The Bank of England, within which the financial services regulator Prudential Regulation Authority operates, warned in its Financial Stability Report last year of growing risks at insurance companies owned by private equity and in the broader industry due to the shift toward private-debt investments. “This business model, while promising benefits, has the potential to increase the fragility of parts of the global insurance sector and to pose systemic risks if vulnerabilities are not addressed,” The Bank stated.

For now, insurers see the opportunities in alternative investments as worth the risks. Insurance companies and asset managers are increasingly in competition to build better investment platforms, but they also make natural partners. The former generate lots of cash while the latter focus on getting better investment returns in public and private markets.

“The deals will continue because they’re beneficial for both parties,” says Neenan. “Insurers with long-term investment horizons get higher yields for patient investing, and alternatives managers collect fees on the assets.”

A match made in heaven … for the time being.

Global Finance: You oversee Aflac’s investment portfolio of about $100 billion, the bulk of which is in Japan, where the company has a large presence. What big changes have you seen there in recent years?

Brad Dyslin: Roughly three-quarters of all things Aflac are Japan-related, as it pertains to my world—earnings, cash flow and investment assets. The biggest change we’ve seen over the last few years in Japan has been interest rates. They had been extremely low for at least the last 25 years, even before the financial crisis. Ten-year government bond interest rates were below 2%, and then they went negative in 2016. That also happened in a few places in Europe, but Japan kept its interest rates very low for a very long time as it tried to stimulate the economy and to rekindle inflation.

Today, we’re finally seeing that happen. Inflation has reignited in many parts of the world, including Japan. That’s caused the Bank of Japan to start moving interest rates up for the first time in at least a generation. In just the last two years, the 10-year bond has gone from 0.4%, or 40 basis points, to about 1.5%. We have a large amount of our portfolio and a significant amount of cash flow denominated in yen, and it’s obviously welcome news to have higher yields.

GF: What asset-allocation framework do you use for managing the portfolio in Japan?

Dyslin: I’ll highlight two things we have done to update our asset allocation in the last few years. The first one is how we’ve utilized U.S. dollar assets for the Japan portfolio. The second, like much of the industry, is how we’ve utilized private assets in the portfolio, notably private credit and private equity.

For the U.S. dollar assets, this is driven by our strategic asset allocation and our approach to asset-liability management. You can think of our portfolio in Japan as consisting of two big pieces. The first chunk is the amount of capital we set aside for future policy claims. Those claims will be in yen for our Japanese customers. We back that liability with yen assets. Supporting that is the capital of our owners—the regulatory and economic capital to make sure there is a strong financial base to support those yen liabilities. That belongs to our U.S.- based shareholders, so we hold that capital in U.S. dollars

To sum up, the money owed to policy holders is in a yen portfolio. The money that belongs to our U.S. shareholders is in a U.S. dollar portfolio. It sounds pretty simple today, but it gets a little bit more complicated when you start factoring in things like regulatory capital and all the regulations an insurance company needs to manage.

GF: What’s the impact of the tariffs being levied by the Trump Administration?

Dyslin: Tariffs are an issue that many business leaders, political leaders and investors are all grappling with. Every indication we’ve seen suggests that they will be inflationary, but the magnitude remains to be seen. As yield-based investors, generally we like higher yields but not at the expense of an economy that could be dealing with higher inflation.

We’ve seen the market respond to tariffs with lower yields. The market is telling us it’s more concerned about a slowing economy than they are about inflation coming from tariffs. So that’s one area we’re watching very closely. At the security level, some companies will be more impacted than others. Some have more ability to adjust to a tariff regime than others, and that’s where our team of around 20 professional credit investors comes in. They focus on understanding these companies. That entails understanding their management teams, their capital structures, and their cash-conversion cycles of all these individual credits. That level of analysis really makes the difference for us.

GF: There’s been some notable M&A activity in which asset managers are acquiring insurers. For example, KKR acquired Global Atlantic Financial Group last year. What’s your take on this trend?

Dyslin: This has involved some alternative managers buying insurers outright, as well as creating strategic partnerships. I’ve been an insurance money manager my whole career, so I find this all very fascinating. It’s gratifying to see these alternative managers taking an interest in insurance company assets, and I expect this trend to continue. It’s exactly what Warren Buffett has done with Berkshire Hathaway—using the stable cash flows and long-term nature of insurance capital to support an investment platform. We’ve seen an explosion of growth that has created some very large managers focused on these various alternative assets.

I expect alternative asset managers to continue forging partnerships with insurance capital. It’s much easier to invest when you’ve got regular, recurring insurance money from premiums and portfolio cash generation, as opposed to having to keep raising new funds. With an insurer, you’ve got an underlying business that generates recurring cash.

GF: How do you incorporate shifting macroeconomic factors into running the portfolio?

Dyslin: We don’t actively reposition the portfolio based on macro conditions like interest rates or currency fluctuations. The way we’ve tried to neutralize our yen exposure is by setting up these two portfolios. So, it’s a yen portfolio for yen liabilities and a dollar portfolio for dollar liabilities, or dollar surplus, which I view as a liability to our shareholders. That’s how we do it in our organization. Every investment manager is managing some sort of liability. It could be to perform against a benchmark. It could be a pension obligation. In our case, it’s future insurance claims. So, investing to meet or exceed the expectations of that liability is the key, and that’s what we really focus on when we set up our strategic asset allocation and making allocation decisions.

I know you’ve asked about how we change the portfolio based on movements in the yen or interest rates. If we’ve done our job correctly—and we have good, solid asset-liability management in place—a lot of that doesn’t matter, or doesn’t matter much. It’s not going to have a big impact on our portfolio. You’re not going to suddenly see the portfolio just shift around because interest rates are 50 basis points higher.

We do make tactical decisions, and aim to be opportunistic, but that’s done more at the security level than at the broader asset-allocation level.

GF: Are most of your holdings government bonds?

Dyslin: We do own a significant portfolio of Japan government bonds, or JGBs. Going back to that yen portfolio I mentioned earlier, we would prefer more yen-denominated credit holdings, but it’s very difficult to find acceptable investments that meet our needs. So we own a lot of JGBs, in part because we need an outlet for yen investments. JGBs also provide liquidity, and they are very long maturity assets, often 30 years. That helps us match our long liabilities against long assets. We also have a very significant corporate public bond portfolio, which provides not only liquidity but also additional U.S. dollar-based income.

GF: Do you have any exposure to high-yield bonds?

Dyslin: It’s about 1% of the portfolio. Most of our high-yield exposure is through private middle-market direct lending, which we believe provides much better value for the risk.

As far as maturity ranges of the securities we hold, it really is across the board and varies by asset class. For our primary outlet for below investment grade—middle market loans—those are generally shorter, often with maturities of five to seven years. Our JGBs tend to be longer, 30-year bonds. Our A-focused investment-grade credit portfolio typically has maturities of 10 to 15 years.

Typically, businesses are required to document their losses, file a claim, and wait months or even years for reimbursement. Insurance companies must meticulously assess damages, verify that a claim was not excluded from the policy, and determine how much to pay. Midsize companies and multifamily property owners can go bankrupt waiting for reimbursement.

Some businesses are choosing another option that promises to get them help faster: parametric policies. Allied Market Research forecasts that the global parametric insurance market, which totaled $18 billion in 2023, will grow to more than $34 billion by 2033.

Parametric insurance has been around for years, covering catastrophes like tropical cyclones, other weather-related events, and earthquakes. These policies’ main advantage is a faster payout, since the insurer agrees to pay a predefined sum when a specific peril reaches a predefined magnitude. Payment is triggered by parameters that can be measured quickly, such as rainfall, hurricane category, or wind speed.

The insurer knows how much the insurance subscriber will pay, and the subscriber understands the amount of coverage it will get. Both are aware of the conditions necessary to green-light the payment.

Parametric policies are expensive: A $1 million wildfire insurance policy could require $50,000 in annual premium payments. But the increased frequency of natural disasters
is emphasizing the need for faster procedures. Ten years ago, wildfires were considered secondary perils and not regarded as existential threats. The 2016 Fort McMurray fire in Alberta, Canada, changed that attitude within the insurance industry: The fire caused $3 billion in losses, which at that time was considered enormous.

Since then, wildfire costs in the US have multiplied, totaling $67 billion in insured losses in 2024, not counting the 2025 fires, according to reinsurer Munich Re.