Parametrics. (Huh) What is it good for? Maybe war risks…

War exclusions were built largely on assumptions that no longer hold. That is according to Tom Johansmeyer, global head of index classes at Price Forbes Re, and Matt Flug, counsel at DLA Piper, both of whom are also co-leads of the Economic & Legal Warfare Project, part of the Irregular Warfare Initiative.

During their panel at the Business Development Agency Risk Summit, held in Bermuda this week, Johansmeyer said the insurance industry still frames conflict risk through “World War Two era assumptions: large ground wars, worldwide scope, vast amounts of damage, lots of it accumulated quickly on an economic basis and basically unchecked physical spread.” Yet the economic reality of modern conflict is different, and increasingly relevant to insurers.

Today’s conflicts are more fragmented and regional, but that does not make them economically irrelevant. The Ukraine war alone produced “$25 billion of industry-wide losses, making it equivalent to a mid-range hurricane.” In a globalised economy, even geographically contained wars can create meaningful insurance loss events.

“Ukraine represents the largest insured conflict loss on an insurance basis, simply because there is insured value there, largely through multinational activity,” Johansmeyer confirmed.

The problem is structural. Traditional insurance struggles in conflict zones because of war exclusions and operational barriers. The panellists pointed to claims adjustment, jurisdictional complexity, sanctions regimes and contract disputes. That friction reinforces the protection gap at precisely the moment when capital is needed most.

Enter, as Flug coined it, the ‘parametric advantage’. “Parametric insurance can potentially play a very important role in areas that are plagued by conflict, or the post-conflict environment, because the parametric product has the ability to limit some of the issues that we generally run into on war exclusions or jurisdictional access to locations.” He explained that there’s more scope to adjust claims and model certain aspects that make the product simpler to place and consider in a loss or claims environment.

Johansmeyer explained this is down to the nature of parametric insurance, paying based on the magnitude of the event rather than sustained losses.

Applied to conflict environments, instead of attempting to insure the unpredictable consequences of war, parametric structures cover adjacent, measurable perils with clearly defined triggers. As a result, parametric insurance can help to address economic issues in the region.

“What makes parametrics interesting, especially in conflict areas, is the fact that you're providing coverage for a known peril, and you're really narrowing it to just that peril,” Johansmeyer said. That distinction matters because it strips out the most difficult components of conflict underwriting. The coverage is narrow, modellable and operationally simple.

Parametrics also bypass the definitional quagmire of war exclusions themselves: “The war exclusion is open to all forms of interpretation, whereas parametrics are narrow and focused coverage.”

For reinsurers and capital providers, the result is a far more manageable risk profile. Capacity can be deployed based on well-understood perils, even when the insured assets sit in geopolitically unstable regions.

That clarity has broader strategic implications. Parametric structures can be embedded directly into financing — agricultural loans, infrastructure projects or reconstruction capital — injecting liquidity into economies affected by conflict without exposing insurers to the war itself.

Conflict-adjacent risk offers diversification precisely as traditional catastrophe markets soften. Johansmeyer spoke bluntly: “If you're not interested in doing good, this is a soft market opportunity… you want to grow, you want to expand, you want to diversify.”

In a time where conflict risk is paramount, parametric insurance offers something rare in war underwriting: clarity, scalability and a pathway for capital to engage where traditional coverage cannot.

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