Parametric Insurance

Coverage paying a set amount when a measured trigger crosses a threshold rather than adjusting actual loss.

Overview

A hurricane policy might pay per mile per hour of wind speed over 120 at a stated coordinate, an earthquake policy per magnitude in a region, with payout arriving in days since no adjuster measures damage. Payout and loss may not match exactly, and the difference, basis risk, stays with the insured. Triggers draw on wind, rain, quake intensity, flight arrival data, satellite flood maps, and generation shortfalls for wind farms. Buyers include governments needing fast relief cash, utilities, event organizers, agriculture, and renewable operators. Caribbean and Central American pools pioneered the structure for disaster response, and proposals for wildfire and drought versions keep spreading.