Global Parametrics highlights how parametric products & cat bonds can scale humanitarian risk financing

A recent report from Global Parametrics has acknowledged that catastrophe bonds can be part of the solution to risk financing for humanitarian organisations. The firm suggests that for humanitarian organisations requiring substantial capacity, multi-year cat bonds, as well as parametric products may secure greater limits and provide longer-term protection than other financial instruments, but only as part of a broader strategy.

The parametric climate risk insurance provider, part of CelsiusPro Group, recently published a whitepaper that explores the use of catastrophe bonds in a humanitarian context.

Within the paper, the firm outlines how it thinks humanitarian organisations should look at a broad range of alternative financing structures, with a particular focus on parametrics, but including potentially other products such as catastrophe bonds.

“Humanitarian needs are rising faster than available resources. In 2024, an estimated 300 million people needed humanitarian assistance. UN and associated partners planned to reach 180+ million of the most urgent cases at a cost approaching US$50 billion. Yet, by December 2024, only US$32 billion had been secured, leaving a ~36% shortfall. This financing gap is not a blip. It is widening, exacerbated by recently announced public funding cuts and damage caused by more intense and frequent climate-linked hazards,” the whitepaper reads.

“Faced with this mismatch between needs and available resources, several humanitarian and civil society organisations are turning to financial instruments in the risk transfer markets often under the perception that these will unlock “new” or additional sources of funding.”

Through risk transfer, Global Parametrics notes that some humanitarian organisations have started experimenting with climate- and disaster-linked insurance to build more shock responsiveness in their operations, enabling quicker action and providing planners with some budget certainty for well-defined risks.

Numerous use-cases highlighted in the report include how Tearfund, UNICEF, and the International Federation of Red Cross (IFRC) have all in the past several years adopted the use of such climate and disaster-linked insurance, while the World Food Programme (WFP) also began piloting similar initiatives in 2006.

However, while the use and integration of such programmes within humanitarian organisations continues to expand and take shape, Global Parametrics observed that more recently, the use and application of catastrophe bonds among human organisations has started to gain attention.

“This is in part being driven by practical funding constraints, a widening protection gap in emerging markets, and a political and institutional push towards the use of market-based financial instruments – pushing humanitarian organisations in search of more “innovative” sources of finance in addition to insurance,” Global Parametrics explains.

Adding: “In theory, by transferring the risk of extremely rare, high severity events to capital-market investors, cat bonds can offer access to large pools of private capital as and when it matters most. In emerging markets, such bonds have been issued and used by sovereigns, including Chile, Philippines, Mexico, Colombia, Peru, and Jamaica (which recently triggered after Hurricane Melissa in late 2025). Similarly, Kyrgyz Republic and Tajikistan are in the process of adopting cat bonds.”

Interestingly, while recognising that catastrophe bond structures can be robust and replicated across various triggers and regions, Global Parametrics indicates that, in their opinion, several obstacles still exist to their effective implementation within humanitarian organisations.

Among these hurdles, Global Parametrics believes that catastrophe bonds may typically be much more expensive than re/insurance for non-peak zones.

From their viewpoint, humanitarian support in the event of a catastrophe needs be implemented swiftly, and any payout from a cat bond or reinsurance product should be designed to align with this urgency; any delays in the processing of funds could considerably diminish their potential value.

They also observe that although catastrophe bonds, re/insurance, and other risk transfer instruments can offer rapid liquidity, their implementation may bring about additional operational and administrative challenges within humanitarian frameworks.

Importantly, Global Parametrics stresses that none of these hurdles means that humanitarian organisations should avoid private sector risk financing through the capital markets.

“Cat bonds have been around for a while, but their application in a humanitarian setup would benefit if preceded by a comprehensive assessment of risks and organisational objectives to justify their adoption,” the firm said.

“The more strategic approach may be to start with the risks that need to be managed, assess how existing financing instruments address (or fail to address) these risks, and identify the gaps. At this point, a humanitarian organisation can determine whether risk transfer is appropriate, and if so, based on a comparison of costs and benefits whether (re)insurance or eventually a cat bond (or another capital market instrument) fits their framework best.”

Simant Verma, Disaster Risk Finance and Insurance Principal and whitepaper author, commented: “Cat bonds are one part of a suite of financial instruments, and an optimal combination of these instruments is how many humanitarian organisations are financing emergency response and recovery.”

Verma added: “With increasing frequency and severity of climate-linked hazards, cat bonds may play a part in finding a sustainable solution to the problem of humanitarian financing. But humanitarian organisations may consider all their merits, and these should include a range of other options.”

Mark Rueegg, Chief Executive of CelsiusPro Group, said: “The decision to adopt a particular financial instrument should be preceded by a comprehensive assessment of risks and organisations objectives. Such an assessment can ensure a targeted engagement with capital (and (re)insurance) markets when the time, and rationale, is right.”

For humanitarian organisations with significant risk transfer needs, the catastrophe bond market can provide a viable source of large limits that can be locked-in for typically longer periods than a traditional parametric insurance arrangement, while also opening up their risk to the depths and liquidity of the capital markets.

Cat bonds would not suit every humanitarian organisation, but as orgs do their diligence on risk transfer and financing solutions, if their requirements for risk transfer limits are meaningful the insurance-linked securities market should be in their consideration set.

It is worth noting that humanitarian organisations can also look beyond parametric triggers. There have been plenty of use-cases of the catastrophe bond where an intermediating entity, such as a captive insurer, can be used to enable a non-insurance sponsor (such as a corporation) to access the capital market for indemnity based risk transfer protection.