BSP, IC push parametric insurance for climate-exposed sectors

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) and the Insurance Commission (IC) are pushing parametric insurance products to widen financing access for climate-exposed sectors

In a statement on Thursday, the BSP said a recent webinar discussed how bundled parametric insurance could sustain lending to climate-vulnerable sectors and strengthen risk management.

Climate-vulnerable sectors include agriculture, fisheries, and micro, small and medium enterprises (MSMEs), among others.

READ: Insurance Commission, crop insurer bolster services

Parametric insurance gives automatic payouts when preset weather triggers are met, unlike traditional insurance that requires damage assessment.

“If climate-exposed sectors become more resilient, they become more bankable, which leads to stronger enterprises, more resilient supply chains, and an economy better able to withstand shocks. This is what payout under parametric insurance makes possible,” BSP Assistant Governor Pia Bernadette Roman-Tayag said.

For his part, Insurance Commissioner Reynaldo A. Regalado described parametric insurance and credit bundling as a form of “bayanihan.”

“Parametric insurance and credit bundling are, at their best, bayanihan in financial form. A bank, an insurer, a cooperative, and a borrower all share a risk that none of them could carry alone,” he said.

Exposure to climate-related risks

The discussion comes amid growing concerns over Philippine banks’ exposure to climate-related risks, as earlier reported by the Organisation for Economic Co-operation and Development (OECD) citing the International Monetary Fund and the World Bank.

“The tests show that typhoons, with their frequency exacerbated by climate change, could materially increase non-performing loans and reduce banks’ capital adequacy, potentially pushing the system below regulatory thresholds in the presence of compound events,” the OECD said.

Further, the Paris-based think tank noted the country’s relatively low insurance penetration and wide protection gaps, with only a small share of households covered by insurance products that protect against natural hazards.

“Regulators should also ensure that insurance policies offer the choice of either parametric instruments, indemnity payments, or hybrid approaches, thus improving the chance of tailoring the terms to the specific circumstances of policyholders,” the OECD said. /pai