When Cyclone Freddy swept through southern Africa in 2023, the physical destruction and loss of life weren’t the only things communities endured. For many, the hardship persisted long after the storm had passed, while communities waited for help to arrive. Weeks passed before companies performed insurance assessments, and by then, local economies and families were struggling to recover.

In tragedies like these, parametric insurance could have made all the difference. Unlike traditional insurance, which requires claims adjusters and documentation of damages, parametric insurance pays out automatically when specific triggers, such as wind speed, rainfall levels, or temperature extremes, are met. In other words, the moment a crisis strikes, parametric insurance is there to help. For climate-vulnerable communities, a speedy response can mean the difference between temporary hardship and long-term devastation.

Parametric insurance operates on a simple yet powerful idea: predict the risk, define the thresholds, and respond instantly. It’s not just about efficiency. It’s about lifting communities on the frontlines of climate change and ensuring they have the resources to rebuild quickly and efficiently.

Across the Global South, this model is already showing results. In Senegal, when rainfall levels fell below a critical threshold in 2022, the African Risk Capacity (ARC) program triggered a payout of $12.5 million within weeks. The funds supported food distribution and emergency services, ensuring that these communities had access to the necessities.

However, the private sector is also stepping up, and not just in theory. AXA Climate, a division of the global insurance giant AXA, has been leading efforts to scale parametric insurance through partnerships with governments, NGOs, and businesses. In Togo, the company helped develop a parametric coverage system that protects farmers against drought. In the Democratic Republic of Congo, it worked with local agencies to implement an insurance mechanism that supports food security.

What sets AXA Climate’s approach apart is its integrated method, combining satellite data and risk modeling with local collaboration and long-term adaptation planning. In the U.S., parametric wildfire insurance illustrates how this model works in practice. For example, instead of relying solely on damage assessments, coverage is triggered when a wildfire footprint enters a defined zone, using NASA satellite data. In states like California and Oregon, where ski resorts and wineries are increasingly exposed to both direct fire damage and smoke-related losses, parametric policies are co-developed with local stakeholders. These contracts can be customized to respond rapidly, not just to structural damage, but to revenue loss from access disruption or unsafe air quality. Rather than arriving with ready-made solutions, AXA Climate develops these policies in collaboration with local actors, ensuring that the triggers align with real-world risks. It’s not just a product, it’s a partnership.

>>> READ: Fixing Flood Insurance

Still, this model isn’t perfect. One major challenge is basis risk, which is the gap between the trigger event and what people experience on the ground. If a weather station doesn’t register enough rainfall for a payout, but a village nearby suffers a drought, affected communities may receive no support. That disconnect can erode trust. To address this, organizations like AXA Climate are working to refine their models and incorporate more localized, real-time data.

Despite these challenges, the momentum around parametric insurance is growing. It’s fast, transparent, and when designed thoughtfully, incredibly empowering. For communities that can’t afford to wait months for help, it represents something rare in climate policy: a solution that delivers immediate, measurable relief.

Parametric insurance won’t stop floods or droughts. But it can help people recover faster and plan with greater confidence. In countries that face frequent extreme weather events, that’s not just helpful—it’s revolutionary.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.