Parametric insurance

From Wikipedia, the free encyclopedia

Parametric insurance (also called index-based insurance) is a non-traditional insurance product that offers pre-specified payouts based upon a trigger event.[1] Trigger events depend on the nature of the parametric policy and can include environmental triggers such as wind speed and rainfall measurements, business-related triggers such as foot traffic,[2] and more. Examples of current parametric products include the Caribbean Catastrophe Risk Insurance Facility (CCRIF), the African Risk Capacity (ARC), and the protection of coral reefs in the state of Quintana Roo in Mexico.

Parametric insurance policies have most frequently been implemented in developing economies, oftentimes for agriculture insurance. In the US, there are proposals to implement parametric policies more often, specifically in the case of flood insurance through the National Flood Insurance Program.[3]