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9 SEPTEMBER, 2025

ABOUT PARAMETRIC INSURANCE POLICY EXCLUSIONS WITH …. WHAT DOES PARAMETRIC INSURANCE EXCLUDE?

Storm clouds over a busy port – extreme weather disruptions drive demand for parametric insurance in Malaysia Storm clouds over a Malaysian port with cranes and containers – parametric insurance helps businesses recover from climate disruptions.

Parametric insurance is gaining momentum in Asia — and Malaysia is starting to take notice.

In March 2025 unusually powerful monsoon winds in Southeast Asia left Singapore Port and Port Klang congested, with more than three hundred cargo ships of different sizes unable to set sail. It was an anomaly, but it could easily happen again as the planet's climate keeps heating up.

Asia is warming most of all, with temperatures rising faster than the global average. Our region already suffers from more natural disasters than anywhere else. Add it together and you get a dramatic insurance challenge affecting all sorts of businesses. Luckily, help is at hand. Here's what you need to know about parametric insurance in Malaysia.

What is parametric insurance?

Parametric insurance is basically a comprehensive business policy, first dreamed up 200 years ago. Back then, figuring out the specific risks involved and setting fair premiums turned out to be too difficult. Now, thanks to big data and AI, the risks are a lot easier to pin down and the cover is starting to go mainstream. No wonder, in 2024, Forbes estimated the market would be worth a mind-bending $29.1 billion by 2032, predicting this is “the moment parametric insurance has been waiting for.”

Who buys parametric insurance?

Businesses relying on rivers are a good example. Think heavy industry, farming and chemical manufacture. As you can imagine, too little water can close a company down and too much water can cause just as many problems. But flooding and drought are not the only events covered by parametric insurance. It also pays out for other climate-related risks like heatwaves and typhoons, and non-climate-related disasters like earthquakes.

Agricultural fields – farming is one sector where parametric insurance can protect against droughts and floods. Green agricultural fields in Malaysia – parametric insurance protects farmers against droughts and floods.

Marine cargo delay insurance and air cargo delay policies are hot property at the moment. Again, before big data and AI came along, this kind of parametric coverage for air and sea cargo delays was too tricky to insure. Now it's becoming as important as traditional cargo insurance, which covers physical loss or damage to cargoes but usually excludes expenses directly caused by delays. Business interruption, compensation for delayed shipments, decline in the market value of products and unforeseen costs are all coverable.

How does parametric insurance work?

Parametric insurance pays out pre-set amounts of money. To find out exactly what the risks are, insurers analyse huge amounts of 'big data' about weather, climate and more using advanced algorithms, artificial intelligence and neural networks. Unlike other policies, instead of compensating a business for actual losses it uses this neutral, measurable data about things like the speed of the wind and seismic activity to underwrite the cover. Once the claims payment process is triggered by an event, insurers pay out automatically to help businesses recover fast with no delays or claims disputes.

Meteorologist measuring wind speed – accurate data triggers make parametric insurance payouts fast and reliable.

Parametric insurance saves the day in our region

We're seeing parametric insurance developing in Malaysia. In 2023, for example, Etiqa General Insurance Berhad launched a Solar Energy Shortfall Insurance or SESI policy, designed to compensate solar farm operators for financial losses from reduced solar irradiation and unexpectedly low light energy reception.

Flood Parametric Insurance for SMEs is already popular in Thailand, recently triggered by the Chao Phraya River rising above a predefined level. As soon as the water reached the trigger level the policy automatically paid money to SME policyholders to minimise business interruption.

When Typhoon Odette swept through the Philippines in 2021 the winds reached 195km an hour, one of the northern hemisphere's most violent storms that year. Now, in the Philippines, typhoon parametric protection is available for farmers. If a typhoon blows faster than a pre-set wind speed limit - for example 150 km an hour - or rain hits a certain limit, farmers are sent fast automatic payouts to replant their crops and repair agricultural infrastructure. In remote areas where claims can often take a long time, this helps support the industries that feed us.

In Indonesia, earthquake parametric insurance for hotels is a popular choice, provided by the insurance giant Swiss Re and the Jakarta Government. If a quake is stronger than 6.0 on the Richter scale in a defined geographic area, hotels and tourist businesses are paid an immediate amount to cover repairs and evacuation. When tourism fuels a country's economy, a speedy recovery makes all the difference.

Aerial view of container port with shipping containers – parametric insurance protects supply chains from costly delays.

Parametric insurance for aquaculture and marine cargo delays is also on the rise thanks to products like Marsh’s marine cargo delay cover, which covers financial losses for time-critical cargoes like food and covers financial, business interruption and other consequential losses. Then there's Willis Towers Watson's aquaculture solution, Asia's first 'four-peril 'parametric insurance, dreamed up to protect Sri Lanka's shrimp farms against weather-related disasters. Because they were covered, the Taprobane Seafood group successfully applied for a huge financing deal to help it develop.

The insurtech brand Otonomi’s three-hour air cargo delay parametric policy covers a glaring gap that has not been insured before, paying out to compensate for very short but extremely expensive stoppages. In a world where 62% of cargo flights every year face delays, it's an important new development for freight forwarders, exporters and importers.

About parametric insurance policy exclusions

Like all policies parametric cover comes with some common sense exclusions, things like cyber risks, war and terrorism, sanctions, infectious diseases, strikes, misconduct, dishonesty, misrepresentation, re-routed journeys, and illegal or dangerous shipments.

Does your business need parametric insurance?

While it's still very new in our region, parametric insurance is expected to eventually become the norm here and across the world as the climate carries on changing. We'll be keeping an eye on the situation as it develops so our clients stay informed on emerging solutions.

Sources

IN THE KNOW

ABOUT PARAMETRIC INSURANCE POLICY EXCLUSIONS WITH …. WHAT DOES PARAMETRIC INSURANCE EXCLUDE?

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