A New Insurance Product Boosts Climate Resilience and Investments

While policyholders and insurance companies benefit from the insurance policies, investors can also benefit by identifying opportunities to invest in startups developing parametric insurance. In Malaysia alone, revenue from parametric insurance is forecast to grow from US$3.5 billion in 2024 to US$9.9 billion by 2033.

Benefits of Parametric Insurance

Parametric insurance pays benefits based on parameters for specific events, compared with traditional insurance that pays based on losses. A parametric insurance policy pays out a preset amount when an event exceeds a threshold that is verified by a third party. The claims processes are faster and easier than traditional insurance.

For example, a rice farmer could get an insurance policy that pays out if rainfall exceeds 300 mm within 24 hours or there is a drought with no rain for 90 days. A construction company could get a policy that pays out if there is a typhoon with winds exceeding 100 kilometres per hour. Weather parameters can easily be verified by a third party such as a national weather bureau. If the disaster exceeds the policy parameter, the policyholder receives a payout automatically regardless of whether they incur a financial loss.

It is important to realise, though, that the opposite could happen. A policyholder who incurs a loss would not be paid if the cause of the loss is less than the parameter threshold.

While agriculture is an important sector for parametric insurance, other sectors such as construction, manufacturing, hospitality, travel and healthcare are also beginning to adopt the solution.

Climate Change Resilience is Driving Growth

The need for parametric insurance in Southeast Asia is huge. Only 5 percent of losses linked to natural disasters were insured in 2024, compared with 52 percent in the US, Sustainable Views said. While take-up of policies is still low, ADB Unit Head Arup Chatterjee expects commercial insurance premiums for parametric insurance across the region to expand by 18 to 22 percent annually through 2034.

Climate change will be a key driver of growth. Smallholder farmers, for example, are suffering more frequently from climate change. As one example more than 545,000 hectares of rice and other crops were damaged in Vietnam in 2025 due to storms and tropical depressions, according to the Ministry of Agriculture and Environment. Losses totalled nearly US$4 billion and few farmers were insured.

Government support for parametric is also increasing. Regional governments have backed SEADRIF, for example, which provides participating ASEAN member countries with technical advice and financial solutions against climate. SEADRIF also partnered with Gallagher Re to create a $16 million two-year disaster insurance programme for Laos.

Opportunities Regionwide

As awareness of climate change grows throughout the region and the scale of disasters becomes more apparent, almost all countries in Southeast Asia have begun to consider or implement parametric insurance.

In Thailand, for instance, the UNDP said there is a noticeable shift towards crop insurance and flood insurance, particularly in agriculture. Products designed to provide targeted coverage at affordable rates are helping to build financial resilience among vulnerable groups. Insurers are using data, satellite imagery and climate models to develop parametric insurance solutions and early warning systems.

Parametric insurance already plays a pivotal role in Malaysia, Verified Market Reports said, and Malaysia is emerging as a key player in the global market. The global importance of Malaysia lies in its capacity to tap into the evolving needs of industries worldwide that require fast, automated, and transparent insurance solutions. Policies cover incidents including weather, natural disasters and health. AI is enhancing risk assessment models, enabling insurers to provide more accurate data and faster claims settlements.

While Indonesia is not as far advanced, Cristiano Bani of Trisakti University believes it has significant potential to become a pioneer in parametric insurance in Southeast Asia. Local insurtechs can catalyse the digitization of parametric products, particularly for MSMEs and the agricultural sector.

Opportunities for Investors

The combination of low insurance usage, high risks from climate change and increasing government support can make the parametric insurance sector attractive for investors.

Investors who carefully consider product innovation, partnerships, regulatory compliance and technical capabilities of startups or established companies may have excellent opportunities amidst strong market growth.

Key Players

Insurance firms large and small across Southeast Asia are rolling out more solutions to help companies across the region. Some solutions have been in place for several years and new ones are under development.

One of the first was NTUC Income, which announced in 2018 that it had launched Droplet. It offers a pay-out when prices on ride-hailing platforms surge due to rain.

Another is Willis, which announced the first ever payout of an innovative parametric policy to coffee farmers in Vietnam who suffered losses due to low rainfall during the 2024 coffee growing season. In the Philippines, Willis partnered with the Bureau of Fisheries and Aquatic Resources and the Philippine Crop Insurance Corporation to launch the country’s first parametric insurance solution for small fishers. The coverage provides up to US$100 per policy cycle to help offset income loss if severe weather exceeds specified parameters.

Igloo said it recently launched a Weather Index Insurance (WII), which it calls a “pioneering blockchain-based parametric insurance for farmers.” The product has drawn interest from partners across Southeast Asia for its potential in agriculture. Igloo said thousands of farmers already use WII, and it now covers 20,000 hectares of coffee and rice padi farms.

Given the strong need for insurance amidst climate change, parametric insurance looks set to grow significantly, enabling policyholders to protect themselves and potentially offering investors positive returns along with social impact benefits.