Insurance-linked loans pushed for climate-risk sectors

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) and the Insurance Commission (IC) are pushing for wider use of parametric insurance bundled with loans to help banks continue lending to sectors exposed to climate risks.

In a webinar on May 13, the BSP and IC said credit-linked parametric insurance could help improve access to financing for climate-vulnerable borrowers by reducing risks for both lenders and enterprises affected by extreme weather events.

Parametric insurance works differently from traditional insurance. Instead of requiring borrowers to file claims and wait for damage assessments, it releases payments automatically once a specific weather event happens, such as heavy rainfall or strong winds.

When bundled with loans, this can give banks more confidence to lend to farmers, small businesses and other borrowers exposed to climate risks. The quick payout can help borrowers recover faster after a disaster and continue paying their loans, while also reducing risks for lenders.

BSP Assistant Governor Pia Bernadette Roman-Tayag said parametric insurance could help make climate-exposed sectors more resilient and financially viable.

“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,” Tayag said.

The webinar, titled “Bundled for Impact: Credit-Linked Parametric Insurance in Practice,” gathered more than 400 participants, including bankers, insurers and development partners.

Discussions covered international best practices, product design, credit integration and distribution channels for bundled insurance products.

Insurance Commissioner Reynaldo Regalado said parametric insurance and credit bundling could help distribute climate-related risks across different players in the financial system.

“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,” Regalado said.

The BSP and IC said the product could be particularly useful for sectors vulnerable to climate events, including agriculture, fisheries, micro, small and medium enterprises, housing, energy, transport and tourism.