What Are Parametric Solutions

Parametric products can be viewed as non-traditional insurance products. They provide pre-specified payouts based upon a "trigger event". The trigger event(s) depends on the nature of the parametric policy but popular constructs include environmental triggers such as wind speed and rainfall measurements, business-related triggers such as foot traffic, and more. 

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One of the main advantages of parametric insurance policies is that they offer much quicker and more certain payouts than traditional insurance. Once the trigger event is verified and specified thresholds exceeded/met, parametric policies contain legal obligations for rapid defined payouts, without the process/need for loss adjustment as with traditional insurance policies. These quick payouts can be especially helpful for immediate relief and action after a disaster scenario.

Parametric insurance is particularly well suited to loss profiles that are not easy to model, and, low-frequency/high-severity trended. These are typically catastrophic perils, weather-related risks in agriculture or other economic activities, and/or risks where there may not be sufficient data history for traditional insurance loss and exposure requirements.