A tourist attraction cannot insure lost revenue when bad weather keeps visitors away. A data centre faces penalties running into millions if it goes offline, but the downtime may not trigger a conventional property claim. A business loses access to its site after a flood without suffering physical damage and finds its business interruption policy does not respond.
These are no longer unusual scenarios. They are becoming increasingly common, senior figures across the insurance market told AIRMIC 2026 in Birmingham, exposing the growing limits of traditional insurance.
There are deficiencies in traditional indemnity policies, particularly where organisations face natural catastrophe exposures, large deductibles, limited sub-limits or risks that do not involve physical damage.
"Policies have exclusions, there are often large deductibles and low sub-limits for natural perils, such as flood and tropical cyclones, and capacity can be insufficient," said Claire Wilkinson, who leads alternative risk transfer solutions for Great Britain at Willis and has worked in the field for 25 years.
"There are also exposures that you simply cannot insure at all, particularly where there is no physical damage impact. Examples could include extreme heat or widescale drought which have revenue or cost impacts irrespective of physical damage to assets."
Climate and natural catastrophe risks are among the clearest examples. Flood, wildfire, extreme heat, drought, hail and wind are becoming harder to insure in some regions as the frequency and severity of events outpace the historical assumptions underpinning traditional pricing. Wilkinson pointed to wildfire in California, Latin America and Australia as areas where risks are increasingly excluded from conventional programmes.
Blanca Berruguete, Head of EMEA Distribution and Client Management at Descartes Underwriting, a specialist parametric insurer, identified the same trend from the underwriting side.
"Climate volatility has made some natural catastrophe risks harder to insure conventionally because the risk environment is changing faster than historical assumptions can always capture," she said. "We are seeing more intensity, more frequency in certain perils, greater accumulation of values in exposed areas, and more complex loss patterns."
Non-damage business interruption is another growing gap. A business may suffer a major financial impact because a site becomes inaccessible, a supplier is disrupted, or operations are affected by conditions that do not cause physical damage but still create significant financial loss. Standard property programmes generally do not respond.
Data centres represent another rapidly evolving challenge. AI-ready facilities bring heavier servers, greater power demand, water-intensive cooling and structural requirements that many existing buildings were never designed to support. Downtime penalties embedded in service level agreements can be substantial, while securing sufficient water for cooling creates an additional exposure that conventional property programmes were not built to address.
"In the context of data centres, I think we have quite a lot to solve as an industry in terms of capacity for physical damage, but the downtime exposures are far more challenging," Wilkinson said. "I do not think we are quite there yet in terms of modelling these downtime exposures, let alone creating sufficient capacity."
As conventional insurance reaches its limits, organisations are increasingly turning to parametric insurance, structured programmes, captives and multi-year stop-loss arrangements. But misconceptions about what these solutions can deliver remain widespread.
The most persistent misconception, Wilkinson and Berruguete agreed, is that parametric insurance can, or should, replace traditional cover. It does not. Parametric solutions are designed to sit alongside a broader insurance programme, closing specific gaps created by exclusions, high deductibles, limited capacity or the requirement to prove physical damage before a claim can be made. Faster claims settlement, flexibility over how claim proceeds are used and data-driven pricing can provide additional advantages where the product is appropriately deployed.
Cost is another common misconception. Buyers often focus on price rather than value, Wilkinson said, assuming a parametric rate on line of 10% is expensive.
"But if they are trying to cover an event that has a 10% probability of occurring, this is a fair premium. The structure of parametric solutions allows policies to be adjusted to target a premium that aligns with available budgets. Changing attachment points, limits or payout formulae can radically change the premium."
Basis risk, the gap between the trigger and the client's actual financial loss, is a genuine consideration, Berruguete acknowledged, but it is not unique to parametric products. In traditional policies it may simply be less visible, embedded in ambiguous wording, sub-limits or the judgement applied during loss adjustment.
Captives are also playing an increasingly important role, particularly for risks the traditional market cannot yet price. Dan Sammons, Captive Manager for UK and Ireland at HDI Global, described captives as incubators for emerging exposures.
"These are relevant and emerging risks to a business that insurance companies may not have enough data about to make an underwriting decision," he said. "Captive owners know their business very well and are able to price for that risk and in doing so generate data, incubate that risk, and hopefully at some point transfer it back into the market."
Chris Jones, chief executive of the International Underwriting Association, argued that the London market still tends to underwrite in silos, even though many modern risks do not emerge that way. A political risk event, for example, might simultaneously affect a company's supply chain, credit risk and business interruption, yet each exposure may sit in a different class of business.
"Many risks are interconnected," Jones said, "particularly macroeconomic and geopolitical risks that impact multiple classes of business and create systemic risk exposure."
He argued for earlier engagement between insurers, brokers and risk managers, alongside a greater willingness to develop solutions that reflect the interconnected nature of modern risk rather than treating each exposure in isolation.
For organisations navigating these gaps, Berruguete was direct about where to begin: with the business problem, not the insurance product.
"They identify the exposure very clearly," she said. "What event would hurt the business, where would the financial impact appear, how quickly would they need liquidity, and what gap exists in their current insurance programme?"
The most effective organisations, Wilkinson added, are no longer treating their insurance programmes as a collection of individual policies. They are managing them as a portfolio, using captives, reinsurance structures and parametric cover in combination.
That move towards portfolio-level risk financing reflects a broader change in how organisations are responding to risks that traditional insurance alone cannot always absorb.
