Parametric Policies
What are parametric policies?
Parametric policies are types of insurance coverage that provide a predefined payout in the event of a covered event. The mechanism is automatically triggered when an external, objective, and measurable indicator exceeds a specific threshold (trigger), set during the contract phase.
When are parametric insurance policies useful?
Parametric insurance policies are particularly advantageous for protecting against events characterized by a risk profile that fits an innovative and more streamlined approach compared to traditional solutions.
Classic coverage, in fact, can make it complex to balance costs and benefits, especially in the case of high-intensity or high-frequency events, such as natural disasters.
Furthermore, parametric policies reduce the costs associated with assessments by using advanced technological tools for damage evaluation.
What risks do parametric insurance policies apply to?
It is possible to take out a parametric coverage for all risks where an index (or parameter) can be identified, measurable in an objective way.
These policies are finding strong application in covering extreme climate risks, such as earthquakes, hurricanes, hail, and heavy rainfall. However, in recent years, they have also been expanding to cover risks in specific sectors, such as agriculture, offering comprehensive coverage for their activities.
How is the compensation provided?
Unlike traditional policies, where the compensation depends on an assessment that certifies the extent of the damage, in parametric insurance, the indemnity is predetermined and is automatically paid out once the specified parameter in the policy is exceeded.
The amount compensated is not related to the actual damage but to a lump sum defined in advance. If the parameter is not exceeded, even in the presence of damage, there is no entitlement to receive the indemnity.
What are the advantages of parametric insurance policies?
Parametric insurance policies offer several benefits:
Lower operational and administrative costs, which result in more competitive premiums.
Simplicity and transparency, due to the clarity on the amount to be compensated.
Speed in the payout of the reimbursement.
Would you like to know more? Contact us for a consultation and find out how we can help protect your business.