This non-traditional insurance method has matured over recent years and it’s exciting to see the solutions that can be achieved with parametrics that are not possible with conventional insurance products.
Parametrics aren’t designed to replace traditional insurance programs but can complement them. They can fill the protection gaps like self-retentions, can provide cover for risks that are typically excluded in the traditional markets and can offer financial certainty where the insured has no control over the underlying asset.
What does it cover:
The basic concept of parametric solutions is simple: Parametric insurance covers the probability of a predefined event happening (e.g. a tropical cyclone) and pays out pre-determined amounts, based on a series of event thresholds. These thresholds are agreed in advance and are based on independent data sources such as, in the case of Tropical Cyclone, the Australian Bureau of Meteorology.
Events may refer to an index-based trigger or an event within a defined area for instance a tropical cyclone. The policy might be structured to pay out 50%, 75% or 100% of a predefined limit for a Cat3, Cat4 or Cat5 cyclone occurring within a 50-kilometer radius around the client’s point of interest.
The notion of ‘point of interest’ is an interesting feature of parametric solution: The client defines a ‘point on the map’, i.e. a longitude/latitude geocoordinate.
Hence, the cover is not limited to the insured’s own locations but can also include infrastructure critical for the client.
Key advantages of parametric solutions:
Speed: Parametric triggers ensure rapid recovery thanks to a simple and quick payout process that provides liquidity when you need it most. No physical damage is required.
Closing the coverage gap: Previously uninsurable costs arising from tropical cyclone can be covered - such as evacuation expenses, first response programmes, loss mitigation costs and other costs hard to insure traditionally or often sub-limited. The product can cover insurance gaps you currently have in a cost-efficient manner.
Transparency: With thresholds for the cover agreed in advance, and objective data sources e.g. Australian Bureau of Meteorology claims expenses are reduced as are delays that often occur in catastrophe situations.
No deductibles: Parametric products typically don’t’ have a deductible, so there is no financial commitment from the client’s side once all triggers have been met.
- Events and Event Venues
- Renewable Energy Producers
- Energy Suppliers
- Wine Producers
- Ancillary Agricultural Companies
- Food Processing
- Commodities producers, handlers and processors
- Property Owners
- Financial Institutions
Examples of potential policy triggers
- Named Cyclone
- Lack of Sunshine
- Excess average rain
- Extreme temperatures
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