The Expert Podcast

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 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 Parametric insurance is a way to either replace or enhance insurance that has been revoked or removed by your current carriers.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.

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 an hour within 20 miles of your house and you get your payout. It's a much simpler claims process.

The criteria for the claim could have anything to do with an earthquake more than a certain amount, maybe like 5.0 on the 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. 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 this 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 lines 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 filed admitted carrier policy is. 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, 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 risks.

So if you have questions about parametric coverage you can click the link below. We have consultation, you can work with a licensed broker, licensed insurance agent. We'd be glad to be of assistance. Talk to you then.