Aon Introduces Innovative Parametric Insurance for Hurricane Storm Surges
Aon has launched a new parametric insurance product to mitigate hurricane-related storm surge losses. Created with Floodbase and Swiss Re, this solution addresses coverage limitations in traditional policies. It allows for flexible, quick payouts determined by specific thresholds related to storm surge, highlighting the need for effective risk management amid increasing hurricane damages.
Aon plc has introduced a new parametric insurance solution aimed at reducing commercial losses from hurricane-related storm surges along the U.S. coastline. Collaborating with Floodbase, a provider of parametric flood insurance, and Swiss Re Corporate Solutions, this innovative product seeks to fill coverage gaps commonly found in traditional insurance policies, which often feature high deductibles and substantial exclusions regarding storm surge risk.
Aon’s 2025 Climate and Catastrophe Insight report highlights that Hurricane Helene was the most catastrophic event of 2024, leading to approximately $75 billion in economic damages, principally from inland and coastal flooding. Claims arising from this hurricane, along with Hurricane Milton, totaled around $37.5 billion, including disbursements from the National Flood Insurance Program.
Storm surge damage can often represent over one-third of total losses for various hurricane events. Cole Meyer, head of Aon’s parametric solutions, emphasized that the data indicates storm surge is a crucial factor in losses impacting corporations, public entities, and insurers. Consequently, Aon has developed this collaborative parametric solution to enhance existing coverage.
Unlike traditional indemnity insurance, which reimburses based on incurred losses, parametric insurance is tied to specific metrics such as water height. Policyholders can determine the payout level corresponding to their desired storm surge exposure, with rates calculated accordingly. The payouts may be applied to any financial losses incurred due to the event, relying on diverse meteorological data sources to evaluate hurricane-related storm surge impacts.
“Parametric insurance provides a fast, flexible and transparent way to cover financial losses caused by natural catastrophes,” stated Martin Hotz, head of parametric natural catastrophe at Swiss Re Corporate Solutions. This novel solution promises to better support corporations in vulnerable regions, offering a prompt payout mechanism that aligns with their risk management strategies.
The increase in frequency and severity of hurricanes due to climate change has highlighted a crucial need for enhanced insurance solutions. Traditional insurance policies often fail to provide adequate coverage against specific perils such as storm surges, leading to significant financial exposures for businesses. Parametric insurance emerges as a viable alternative, offering immediate payouts based on predefined metrics, thus ensuring quicker financial recovery for policyholders following catastrophic events.
Aon, in collaboration with Floodbase and Swiss Re, has launched a parametric insurance solution to address the significant financial risks posed by hurricane storm surges. This innovative product offers quick payouts based on predefined parameters, bridging coverage gaps in traditional insurance. With rising economic losses from hurricanes, such solutions are increasingly vital for corporates and insurers alike to enhance their risk management strategies.
Original Source: www.insurancejournal.com
