Parametric Insurance
A different way to transfer risk.
Instead of assessing a physical loss after the fact, parametric insurance pays out against an independent, predefined parameter — removing ambiguity from the claims process and accelerating settlement.
Side by side
Physical loss vs. predefined parameter.
Traditional Insurance
Payout reflects the assessed value of the physical loss, once verified.
Parametric Insurance
Payout is a predefined amount, released once the independent parameter reaches the agreed trigger.
How a trigger works
One example, from data to payout.
1. Select the index
An objective, independently published data series is agreed — for example a rainfall index for a defined location and period.
2. Set the trigger
A threshold is defined together with the policyholder — for example, cumulative rainfall falling 30% below the historical average.
3. Monitor the index
The index is tracked continuously against the trigger using the agreed independent data source throughout the policy period.
4. Trigger the payout
Once the trigger is reached, the predefined payout is released — without a loss adjustment process.
Why it matters
Speed, transparency and objectivity.
Faster Settlement
Payouts can be released once the trigger is confirmed, without waiting for a physical loss assessment.
Objective & Transparent
The trigger is based on independent data, agreed in advance — reducing ambiguity for both parties.
Simpler Claims Process
No loss adjustment or lengthy documentation is required to confirm the payout.
Complements Traditional Cover
Parametric solutions can sit alongside indemnity insurance to fill gaps or provide rapid liquidity.
Parametric insurance is not a replacement for all indemnity cover: because the payout is linked to an index rather than to the actual loss incurred, there can be a difference between the payout and the real financial impact — known as basis risk. Careful trigger design and index selection are central to minimising this gap.
Where it applies
If a risk can be measured, it can potentially be parametrised.
See parametric structuring in practice.
Explore the Risk Intelligence Platform or talk to our underwriting team about a specific exposure.