Quarterly Review | Fall 2026

El Niño is a climate event in which the Pacific Ocean becomes warmer and alters the strength and direction of trade winds. It comes around every few years and changes weather patterns around the world, leaving floods, landslides, wildfires, and various types of storms in its wake.

This year, a super El Niño (it has been referred to as both “jaw-dropping” and “Godzilla-level”) has reportedly raised the ocean temperature by a record 3.05℃ and is projected to reach a further historic increase of 4℃ by November. Scientific modelling predicts widespread droughts, severe crop disruption and nearly half-a-million deaths globally as a result of the heating. Almost certainly, people with fewer resources, many of them in the global south, will incur El Niño’s worst effects.

Against that backdrop, parametric insurance raises a practical question: can insurance move beyond compensating communities after catastrophe and help them act before losses occur? Insurance can play critical role in mitigating and even preventing damage wrought by natural catastrophe. And for several years, El Niño has been the target of specific attention. Peru has often been especially hard hit by El Niño, and in the late 2000s, agricultural economist and (now retired) University of Kentucky professor Jerry Skees worked with the Peruvian insurer La Positiva Seguros to pilot a unique business-interruption product for the country. They pointed to US National Oceanic and Atmospheric Administration data, records of restructured loans from the catastrophic 1997-98 El Niño, and a centuries-old tradition in the country of weather forecasting, to make the argument that El Niño can be projected, is known to cause extreme flooding in northern parts of Peru, and that massive financial loss results from these weather effects. So why not start thinking about preventing the damage, even extending help before the floods? they asked.

Peru’s insurance regulator was persuaded, and in 2010, an index-based product was introduced in the country that provides payment on the basis of the event itself, rather than on a measure of its damage. Loaning bodies were able to release funds before the worst flooding occurs, allowing farmers more flexibility to protect both their produce and themselves. (La Positiva no longer offers the El Niño forecast insurance. Skees thinks it was missing a few features, including the availability of a multi-year contract. Given the nature of El Niño, he says, buyers and sellers need to be able to enter into a multi-year so as to make the necessary long-term commitment.)

This is an example of parametric insurance, which is increasingly being relied upon in the face of the global climate crisis. Because parametric claims are determined by clear and verifiable weather-related data points, also called “triggers”—predetermined temperatures, water levels, millimetres of rainfall, for example—the products can be applied at scale; everyone affected in a given region can have cover under the same parameters. Where traditional insurance would require damage assessments before settling claims, parametric pays out regardless of the damage incurred; it makes relief available sooner, more easily, and arguably, more equitably.

The model is not frictionless. Its speed and simplicity depend on whether the chosen trigger accurately reflects the loss, whether reliable data is available, and whether the parties have agreed on a workable fallback when reporting systems fail.

It’s not a new concept. Indian scholars were writing about possible applications of parametric insurance in agriculture as long ago as the 1920s, says Skees. He knows a man who, as a doctoral student at the University of Chicago in the 1940s, did his dissertation on crop insurance and received a stamp of approval from two Nobel Prize winners, Theodore Schultz and Milton Friedman, who were on his PhD committee. (“This is a great idea,” one of them commented. “You should try to see if you can make this happen.”) Canadian agriculture is wise to the benefits of indexed coverage; Quebec, says Skees, has worked with area-yield insurance for decades. Today, with the way science has moved and with so much more data available, parametric insurance is “a lot more doable,” Skees says. “There’s a lot more opportunity for innovation.”

Alex Korb, an alternative risk solutions consultant based in New Jersey, points to “the growing availability, granularity, and coverage of all sorts of weather and non-weather metrics” as a boon to various applications of parametric insurance. Improvement in satellite technology, including a proliferation in the variety of sensors that can be used, have allowed satellite data to become a payment trigger for parametric contracts. Tech companies, in what Skees calls their “race to do AI for good,” have, over the past handful of years, developed ever more sophisticated forecast models. Today, a measure known as “track of storm” can precisely project the path of a hurricane, where and when it will make landfall, three or four days in advance. “Hurricane Sandy caught New York by surprise, but it looks like that wouldn’t happen again,” says Skees.

But it isn’t just the fancy new technology that enables parametric assessments, Skees points out. Historic data—records of weather events over past decades and even centuries—is also critical to parametric insurance because it allows for the ranking of disasters. Ranking is key, says Skees. A question to be settled about any looming storm is whether it’s a “five-year, a 50-year, or a 100-year event?” He says, “You need to have some view of what the exposure is, and what the hazard is that’s creating the damage, and that’s where the magic sauce comes in. That becomes the real value proposition of what can be done with a parametric product.”

Consider wildfires in Canada. When assessing the risk of the damage they might do, there are many components to look at. There’s the history of wildfires in specific regions, as Skees noted. There are also recent developments such as higher temperatures and more fuel that increase the likelihood for wildfires to occur more frequently, to be more dramatic, and to cover a larger space geographically. “A lot of work is done to help people understand where the exposure is,” says Skees. Then comes the question of who has ownership for the wildfire? “It’s not only the homeowners, but it’s the communities, the provincial governments, the federal government of Canada. Everybody’s involved in that particular risk, as they should be.”

In 2016, Skees founded Global Parametrics, a company that creates parametric solutions “to protect vulnerable communities and build natural disaster resilience,” per its website, particularly in the global south. Today, Global Parametrics sits in Lloyd’s of London. In 2025, its Natural Disaster Fund (NDF) reported that $104 million dollars of coverage was provided in the service of 34.3 million people. “This coverage gives businesses the certainty to invest and expand their operations creating growth and jobs and—importantly—when disasters have hit, $15 million in payouts have been deployed to support communities to respond,” says the NDF’s 2025 Impact Report.

Skees’s international work started with the World Bank in the mid 1990s. Today, the World Bank is doing catastrophic bonds, “which,” says Skees, “is a way to bring in other investors into a natural disaster.” In 2024, Jamaica purchased a World Bank catastrophe bond worth US$150. In 2025, within days of Hurricane Melissa, a category 5 storm, making landfall in Jamaica, the island was able to call in that bond along with claims from other “pre-arranged domestic, regional and international financial instruments” that amounted to US$ 662 million, per Ekhosuehi Iyahen and Pepukaye Bardouille in a story for Insurance Development Forum . “Together, these mechanisms ensured that funding was available immediately, without reliance on emergency borrowing or ad hoc negotiations,” said the writers. The New York Times explained that the World Bank’s $150-million catastrophe bond was “a financial tool that essentially transfers the risk from Jamaican taxpayers to global investors.”

An extreme weather event threatens deleterious effects in all aspects of day-to-day life. Public health is typically at great risk, particularly in the disruption to the availability of clean water. The Global Center on Disaster Risk and Poverty, founded by Skees and based in Louisville, notes that “Restoring water service quickly is the single greatest accelerator of overall community recovery.” In the aftermath of floods and wildfires, business and livelihoods are typically on pause and sometimes even on the line. Traditional indemnity insurance tends to focus on physical damage, leaving much of the actual loss incurred in a community uncovered. “A community may suffer a billion dollars of economic loss after a wildfire, but only get insurance for $10 million,” says Korb. It’s what is known as a protection gap. “This is exactly where parametric insurance shines,” he says. “It is agnostic to the notion of physical damage, and therein is a great opportunity to provide financial protection for a variety of other risk factors.” Parametric solutions focus on covering the overall economic impact of an event rather than a small subset of direct physical damage resulting from the event.

The availability of accurate data to provide precise payment triggers coupled with a more comprehensive concept of what loss means in the wake of a natural catastrophe is opening up what Skees calls “a world where you can pay to prevent losses rather than paying because there are losses.” He points to a movement known as anticipatory action, which has been avidly adopted by the humanitarian community, with some 200 active programs being run by groups such as the World Food Programme, the UN’s Office for the Coordination of Humanitarian Action, the Red Cross, Catholic Relief Services, the U.S.’s Food and Agriculture Organization, and the Start Network out of the UK. “They’re all leaning into forecasting, doing action plans, and financing action steps that will prevent losses and loss of life as the event is developing,” says Skees.

Sometimes claims are paid even before the event takes place. One example is a project in the Philippines ahead of Typhoon Odette in 2021 that digitally transferred a total of 4 million Philippine pesos (nearly $90,000 in CAD) to more than 2,600 families in the country’s most vulnerable cities and towns. The idea was that the extra money could “assist households to prioritize their urgent needs three days before the projected impact,” according to Kristine Sabillo-Guerrero, writing for Prevention Web, a site run by the UN Office for Disaster Risk Reduction.

In a 2019 report entitled “Forecast-based Financing (FbF)—Anticipatory actions for food security,” the World Food Programme outlines a number of its FbF programs aimed at alleviating the effects of extreme weather. In African countries where severe drought can be predicted months in advance, measures can focus on: “the rehabilitation of water points or construction of irrigation infrastructure”; training farmers in “alternative agricultural practices and livelihood options”; or providing them with “access to drought-resistant seeds that will guarantee them a harvest in case the rains come too late or fail completely.” The WPF works with both FbF and index-based insurance to deliver assistance in as “smooth, timely and predictable” a manner as possible.

“That’s the major value proposition of forecast-based insurance, which is parametric in nature,” says Korb. “It really puts the money behind ‘predict and prevent’ versus ‘repair and replace.’”

This sequence—money first, damage second—in a sense turns traditional insurance on its head. It also replaces what Korb calls “the bugbear of any traditional insurance contract”—the claims process.

“That’s what consumers and businesses alike dread the most,” says Korb. “The back and forth with a claims adjuster that might go on for weeks, months, sometimes years, and potentially lead to contention and litigation. And let’s put it simply: you really, at the end of the day, don’t know whether you will be paid under your contract, when and how much.”

A similar benefit extends to the insurer in terms of simplicity and transparency of process. “You will know very quickly whether or not you owe payment under that contract,” Korb points out. “The Environment Canada website will tell you, yep, this much rain fell.” With parametric insurance, everything is pre-agreed “in a very clear, transparent fashion,” he says. The “black box” aspect of a claims settlement is out the window. “You take it completely outside of the arguably contentious relationship between insured and insurer, and you base the payment decision on an independent objective, third party,” says Korb. “Typically, it’s a government agency, but it could also be a private agency that is authoritative and reputable.”

Finn Magee is CEO of Insurtech Canada, a firm that works with tech companies, insurers and brokers, and investors, often acting as a liaison between the parties with the “overall goal” of making “a better insurance landscape in Canada,” and to facilitate “the responsible use of technology.”

Magee describes a climate-related parametric application to travel disruption. One of Insurtech’s clients is an Irish-based company called Blink Parametric. “In their office, they have a huge screen with all the flights happening around the world,” says Magee. “They have access to all this data, so they immediately know if, for example, you have a parametric product related to flight delays. And if your flight is delayed over three hours, Blink also knows that right away, and boom, the policy gets paid out.” The claim might be paid out in the form of access to an airport lounge, an upgrade credit and sometimes in cash. The point is, it’s automatic, because it’s based on collectable data, hard triggers.

It’s an example of “what makes a parametric product so attractive,” says Magee. Whereas with a traditional policy you have “a ton of different rules and qualifications when it comes making a claim payable,” with parametric it’s all “pretty simple.”

Magee suggests thinking of parametric “as a way to cover things that traditional insurance might not cover,” adding, “it has everything to do with liquidity after a claim.” An example: “A hurricane hits, and it hits the parametric product’s wind requirement. A hotel gets paid $2 million that week. That liquidity for a big hotel chain would have a pretty big economic impact on the company as a whole.” But the company has a buffer; it can recoup rather quickly with a parametric coverage. “It’s all about the speed of the payout,” says Magee.

The climate risk in Canada is increasing, he says and “as weather worsens and we’re looking for different ways to cover catastrophe-related claims, parametric is the way forward.”

Magee estimates that about 50 per cent of carriers in Canada offer some form of parametric insurance. Brokers are setting up dedicated parametric desks, says Korb, and companies have teams dedicated to developing parametric solutions. “Awareness and use cases are growing rapidly around the world in public and private sectors alike,” he says. Still, on the whole, despite being around for several decades, Korb considers parametric solutions to still be “quite a green field in terms of awareness.” He sees the parametric as the “next best thing since sliced bread” in risk management. All risk professionals, in his opinion, “ought to at the very least be aware that parametric insurance solutions exist and increasingly form a crucial element in ensuring resilience of public and private entities alike.”

Most do, but there is a need for education. That’s what Aviva undertook when the insurer decided, about three years ago, to explore alternative insurance solutions for clients adversely impacted by weather. “We’ve seen a lot more events happen around Canada, and it kind of spurred on our interest in parametrics,” says James King, Aviva’s head of fronting and multinational. To date, they’ve developed a platform with five products, two related to rain, and three to temperature.

A temperature product might appeal, for example, to companies that employ construction workers and face regulations prohibiting outdoor work when the temperature is above a certain degree. It is increasingly likely that consecutive days will reach the threshold of heat, and a string of such days could leave construction companies behind on work contracts, stuck with bills for unused equipment, and at risk of losing their staff who might look elsewhere for work. A parametric vehicle could subsidize some of these costs, for example, offer workers a stipend when they are sent home. “If you have employees and you have some sort of mitigation or budgetary requirement, you can look to these policies to fill some of those gaps for you,” says King. “It’s a complementary offering that helps because it’s generally a quicker payout than you’d see with other products.”

For brokers, parametric insurance brings an opportunity to help clients with repeat losses who are having difficulty finding coverage. It means learning about the myriad causes of weather-related damage, which ones are most consequential and under which circumstances. Take flooding. “You might think the parameter would be rainfall, that a certain amount would trigger the event, but it’s not always the case,” says Jason Foroglou, vice-president of the Canadian Broker Network. “There could be a local river whose height depends on how much snow fell the winter prior, and the runoff, and now in the spring, the river’s 12 centimeters higher than normal.”

In gathering information for underwriters for parametric products, brokers have more to consider and analyze, Foroglou points out. “A lot more thought goes into the structure of the solution,” he says, “and a lot more negotiation and collaboration between the broker and the underwriter.” Brokers and insurers have to agree on the parameters, he notes. They have to agree on the triggers. “They have to agree on the backup to those parameters because sometimes these weather reporting systems fail or are unavailable. What if on the day of this event, we didn’t collect the data, or the mechanism wasn’t able to collect the data?”

At some point, says Foroglou, most brokers are going to encounter situations where parametric insurance would provide clients with the weather-related coverage they need and may have been having trouble securing. Maybe the client has “had a frequency issue, a number of losses over certain years,” he says. “It’s getting very expensive. The deductibles don’t make sense anymore.” It’s a chance to get creative, to call an underwriter, and “just see if they’ve got any ideas.”

It’s really a different way of thinking about protection, says Foroglou. “You have one-in-300-year events happening twice in a decade. We’re seeing things where the standard traditional insurance solutions just can’t cut it, so we’ve got to look for alternatives.”

Parametric insurance is not a replacement for traditional models, says Jerry Skees. “Let’s put the two worlds together,” he suggests. “Traditional insurance with parametric insurance in the front. And then let the traditional insurance pay the difference. Putting the parametric product in front of an indemnity one is a great way to provide some business interruption insurance, he says. “Event-based insurance will pay even when there is no property damage. We know that many extreme events create business interruption. So you get the value of the fast payment from a parametric policy, and then you tidy up with the indemnity product. Think of it as something that makes your business stronger if you use it in the right way.”