Parametric Insurance In A Volatile World

Parametric Insurance
Written by James

Last Updated on March 16, 2022 by James

One of the major takeaways from the pandemic is that our world is dangerous, volatile, and unpredictable. As a result, people are looking for insurance policies that cover risks resulting from climate change, global health crises, or even supply chain problems.

What is Parametric Insurance?

While traditional insurance policies reimburse claimants based on the value of the loss, parametric policies pay out only when a particular event occurs – regardless of whether there were any damages. Therefore, the reimbursement amount doesn’t rely on the extent of the damage but the magnitude of the triggering event – e.g., wind speed, sea levels, amount of rainfall, etc.

How Does Parametric Insurance Work

Parametric insurance policies are simple and elegant; it is made up of two important parts: a triggering event and a reimbursement procedure. These two constituent parts define the extent of the cover, along with the pricing, and conditions under which payments are made.

These are the most important components of a parametric insurance policy:

  • An event, such as a flood or earthquake, takes place.
  • A reliable, third-party source, records all the relevant data surrounding the event. This is necessary because the entire payout cannot be actualized without is this data. 

Jointly, these components give policyholders a faster claims experience – the events are independently verified and payments are made almost instantly.

Benefits of Parametric Insurance Policies 

Parametric insurance policies provide instant payments that effectively fill the holes created by traditional insurance.

Attractive Prices

Traditional insurance has difficulty with accurately pricing the risk of damage. Very often the prices used by traditional indemnity are so high that make policies unattractive to customers. 

The policyholder typically has an advantage over the insurer because they have more information of their own risk than the insurance carrier. Parametric insurance policies do away with this imbalance –  both parties have access to the same information.

Optimized Underwriting

Parametric policies enjoy an optimized underwriting process. Since prices are based on the probability of an event occurring, parametric policies have fixed and capped settlements. This enables insurers to drive more revenue by cutting down on the amount of time and data needed to issue a quote.

Personalized Insurance Policies

Traditional indemnity typically relies on standardized wording. By contrast, a parametric policy is a personalized insurance product with customized provisions. The personalized phrasing reflects the policyholder’s particular needs.

Also, bear in mind that a parametric insurance policy can be valid from a couple of months to several years, which makes it incredibly flexible.

Customer Experience

The policyholder knows the exact amount and the time when they can receive a payment. The speed and reliability of parametric insurance give policyholders ease of mind and boosts the customer experience. 

The promise of a smooth reimbursement process, as opposed to the well-known tedious process carried out in traditional indemnity, is a very powerful selling point.

The Most Important Software Solution for Building Parametric Policies

business rules engine is a hyper-efficient software solution that can be configured in real-time without getting into the code of an application. Rules engines are used by insurance carriers because of their user-friendly interface, which gives underwriters a clear overview of all the processes. As result, parametric policies can be made in minutes without having to rely on any IT support.  

About the author


James is a dedicated writer on, with a passion for all things gaming, tech, and anime. His articles provide an in-depth look at the latest trends and insights in these exciting worlds, offering readers a multifaceted view of the gaming industry, technology innovations, and the enchanting universe of anime. Whether you're a gamer, tech enthusiast, or anime lover, James has you covered with his engaging and informative content.

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