Parametric is a new kind of insurance, fit for our changing world.
Parametric insurance is typically used to complement, rather than replace, conventional insurance, but sometimes parametric policies are used to cover things that traditional insurance cannot, like intangible losses.
Conventional insurance refunds adjusted losses suffered by policyholders caused by an insured peril, up to the policy limit.
Parametric insurance – policies with a ‘parametric trigger’ – pay out a specified sum when a certain, very specific event occurs, the ‘parameter’.
The occurrence of the event alone triggers the policy.
If organization A says event B has happened, insurer C will pay $D to policyholder E
The insured loss event must have potential to cause a negative impact on the insured. However, that impact – the loss – need not be measured, or assigned a cash value.
The insured loss event must be fortuitous – one that happens by chance – and the underwriters must be able to model the likelihood of occurrence with a reasonable degree of comfort.
Claims can be paid almost instantly, since they simply require confirmation, usually by a third party, that a parameter event has occurred. That means payment is fast. Large sums of money are saved because costly loss assessment is not required.
In parametric insurance, the underwriter’s assessment is focused on the risk of the loss event occurring. This allows greater price certainty, which makes parametric insurance pricing much more stable over the long term. It also eliminates the effect of inflation on the cost of coverage.
During soft-market cycles, parametric insurance helps to differentiate and add value for insurers in a highly competitive marketplace. When prices are high and rising, parametric can help to cover gaps and exclusions, and to ensure price certainty.
The Benefits of Parametric Insurance
Why choose parametric insurance cover?
- Parametric pays quickly
Insureds need not wait months to get paid. Parametric policies pay out in weeks, and sometimes days.
- Parametric provides certainty of coverage
Insureds are never left wondering if their insurance will pay. Coverage suits are a thing of the past.
- Parametric provides breadth of coverage
Policies cover the spectrum of loss, from physical damage to intangible losses like loss of reputation.
- Parametric covers the “uninsurable”
Parametric payouts can be used to cover self-insured retentions, deductibles, excluded events, the knock-on impacts of third-party failures, delays, reputational harm, loss of attraction, or any other tangible or intangible loss arising from an insured event.
- Parametric insures emerging risks
Unlike conventional insurance, parametric insurance can be priced without a loss history. That means new and emerging risks – or those that are constantly in flux, like cyber and climate risks – can be covered with confidence.
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