Trust issues limit parametric insurance growth in Asia

Lack of understanding and low agent incentives pose major barriers.

Parametric insurance is being hailed as a breakthrough in climate resilience—but trust issues, limited awareness, and structural challenges continue to restrict its broader adoption across Asia-Pacific.

“Parametric insurance claims payment is fast, but it is not foolproof. It pays based on preset triggers, not actual damage. That's where basis risk comes from,” said Arup Chatterjee, Unit Head, Capital Markets and Insurance Practice Team, Finance Sector Group, Asian Development Bank.

He cited the case of Typhoon Rai, which devastated the Philippines in 2021. “Over 1.2 million buildings were damaged, but some policies didn't pay because wind speeds fell just short of the trigger. So no payouts results in big trust issues,” he said.

Agents are also hesitant to promote parametric products. “It’s too complex to explain, and commissions are also low,” Chatterjee noted. “From an insurer perspective, those focusing on indemnity products lose access to profitable segments of the portfolio to parametric insurance providers. This compresses margins and reduces overall profitability.”

Reinsurers, too, are cautious. “Data quality, model reliability and reputational risks are harder to price than traditional insurance products,” he said. The lack of strong risk infrastructure and high data costs in many developing countries further complicate the landscape.

Despite these challenges, the sector is growing. Parametric insurance is expanding at 19.2% annually worldwide, rising from $2 billion in 2015 to $15.1 billion today. Asia-Pacific makes up about $2 to $3 billion of that, driven by rising climate events and improved data capabilities. In Indonesia, a national parametric disaster program now covers 11 million public assets.

Still, Chatterjee emphasised that for parametric insurance to scale, “we need better data, smarter triggers and more transparent communication and financial literacy.”

Governments are responding. “As of 2025, 19 jurisdictions are updating regulations to support parametric insurance and catastrophe bonds,” he said. Countries like India, China, Mongolia, and Fiji are piloting new models, while Singapore and Hong Kong are incentivising catastrophe bond issuances.