Parametrics
An index-based insurance depending on pre-determined events.
What is Parametric Insurance?
Parametric solutions are rapidly growing as it can enhance traditional liability policies. Parametric coverage is triggered when a pre-agreed metric or parameter that is easy to determine is met upon the occurrence of a specific event. A pre-agreed payment is then paid upon the incident date. It is important to note that claims are not paid due to an incurred loss, but are paid due to a triggering event.
What does Parametric Insurance cover?
Ultimately, parametrics can cover almost anything. It is a matter of deciding the specific event, the triggered metric and the compensation amount. As payment is made due to an event occurring rather than damage incurred, there is no definite description of coverage per-se. However, any agreed terms will be written in the contract so any misunderstandings can be prevented for both parties. Nevertheless, the maximum payout may not exceed the client’s actual losses.
What are the advantages of Parametric Insurance?
Parametric insurance is highly advantageous to the insured as the insurer knows exactly how much the pay out will be if the coverage is triggered. As there is a pre-determined amount for a preset trigger event, it eradicates the lack of clarity that often clouds agreement terms in traditional insurance. Claims are also paid quickly, subsequently providing immediate cash relief. Furthermore, unlike other solutions, parametric insurance does not have any limitations in terms of customization.
Who needs Parametric Insurance?
How much does a Parametric Insurance policy cost?
Parametric insurance is always tailor-made as each business’ risks are unique. Simply put, the cost of the policy is determined by the insurer’s risk assessment of the triggering event.
