Understanding Parametric Insurance in High-Risk Markets
So what is parametric insurance and how can it help you more and more markets in the United States are becoming higher risk markets things like hurricanes earthquakes fires floods even hail storms are making Insurance coverages in some areas more difficult insurers are pulling out of the market they’re limiting policies they’re cancelling policies they’re even putting limits on the deductible and and the upper limits of policies parametric insurance is a way to either replace or enhance insurance that has been revoked or removed by your current carriers it can cover property it can cover businesses it can cover other types of real estate.
How Parametric Insurance Works: A Triggered Event System
The way it works is this unlike a traditional insurance policy that has a claims process that goes through checking out your damage making sure it was caused by a covered Peril and getting estimates on repairs this is simply a triggered event policy if a certain event happen for example if the wind was more than 100 miles an hour within 20 miles of your house let’s say that’s the policy that you have it has a fixed payout it might pay you 100,000 200,000 whatever your policy describes so all they need to do is just confirm with the Weather Service that the wind was more than 100 miles hour within 20 miles of your house and you get your payout it’s a much simpler claims process.
Various Trigger Criteria for Parametric Policies
The criteria for the claim could have anything to do with an earthquake more than a certain amount maybe like 5.0 Richter scale it could be hail bigger than one inch it could be a fire occurring within a certain radius of your home there’s a number of different triggers that could be used to pay out parametric insurance.
Premium Structure and Surplus Lines Requirements
The premiums are usually pretty reasonable they may have different limits different deductibles different types of layered claims processing but make sure that you understand that is also a surplus lines policy this doesn’t go through the normal filed carrier admitted carrier process you have to deal with a broker that’s a surplus lined licensed broker you have to deal with a broker that has markets for this parametric insurance and that know how to describe what the coverages are to you and what the difference is between a parametric insurance policy and a more formal a filed admitted carrier policy is.
Business Applications and Added Value
But if it does sound like something that might be added value to your home even your business you can cover business losses maybe even loss of sales based on a certain event and even though parametric may not seem like something you’re familiar with.
Life Insurance: A Familiar Example of Parametric Coverage
We all have some familiarity with a certain type of parametric policy that would be a life insurance policy technically life insurance is a parametric insurance policy there’s an event that happens somebody dies and it pays out a fixed amount of money they don’t pay out different amounts of money based on how bad they got hurt you know if they died too soon too late it’s a fixed amount if they died and all they have to do is get a death certificate and pay the money so parametric is a common type of insurance probably the most common but it’s not very common to have it applied to these other Property and Casualty type risk.
