Contrary to the reimbursement method of standard commercial policies, parametric insurance is a form of coverage that offers protection based on a predetermined, measurable characteristic tied to a covered event.
Under such coverage, the amount in which a policyholder is compensated isn’t decided by the exact cost of damages sustained, but rather by the calculated intensity of the covered event itself. For instance, if a hurricane caused damage to a commercial property, a parametric policy might reimburse a set dollar amount linked to the storm’s wind speeds.
Parametric insurance can be a particularly beneficial form of coverage to have in the scope of large-scale natural disasters, especially when not all associated losses entail physical damages. Yet, there are some additional aspects of this coverage offering to consider. Review the following guidance to gain a better understanding of parametric insurance.