Actuarial Insights into Climate-Resilient Parametric Insurance for Sustainability

Due to the increasing frequency and severity of climate-related disasters, there is an urgent need for innovative risk management techniques that address environmental sustainability and climate change. This study investigates the relationship among climate risk management, sustainability, and actuarial science, with a particular emphasis on the concept of parametric insurance.A distinctive way of mitigating risks associated with climate change is provided by parametric insurance, a rapidly developing field of the insurance sector. This study offers a comprehensive overview of its potential to reshape the insurance industry's response to the pressing challenges posed by a changing climate. Unlike traditional insurance, which depends on estimates of losses after an event, parametric insurance covers the probability of the occurrence of a predefined event and makes payment in accordance with a predetermined plan.The development and implementation of parametric insurance, such as creating risk models, examining past climate data, and identifying the best trigger systems are explored in this study, which also promotes sustainability by analyzing the relationship with climate risk. The Actuaries Climate Index (ACI), as an example of index-based modeling, and the product designs based on the ACI could be beneficial in this context. As a contribution of this study, a discussion of parametric insurance design based on the Turkish Actuaries Climate Index (TrACI) is carried out.