Parametric Insurance Coverage: A Better Claims Solution
Published on Apr 05, 2021stacie
Waiting for a claims payout can be a problem. Parametric insurance can provide the solution. This unique insurance model simplifies the claims process to provide immediate payout.
The Gap in Traditional Coverage
After a loss, insurance helps policyholders recover. Unfortunately, this recovery can take a while. With traditional policies, the adjusting process must occur before the claim can be paid. With minor claims, this may happen quickly, but with more complex claims, the process can drag on. After a disaster, it can take three to four months before the claim is finally paid. That’s three to four months of waiting to get your life back on track.
With parametric insurance, this adjusting process is not needed. In fact, claims can be paid out immediately when a covered event occurs.
How Parametric Insurance Works
In traditional insurance, the claims payout is based on the value of the loss. This means that the claims adjustor has to calculate the loss before the amount of the claim can be determined and the claim can be paid.
Parametric insurance is different. The payout is for a fixed amount. If a triggering event occurs, based on the definitions and parameters of the policy, the fixed amount will be paid out irrespective of the costs of the losses that occurred.
Parametric insurance is best used as an addition to traditional coverage. While it does not replace the need for conventional insurance coverage, it does provide a way to fill in the protection gaps that conventional policies can leave.
A Growing Need and Capacity for Parametric Insurance
Parametric insurance isn’t exactly new. It’s been around for a while now, but its popularity is growing.
Part of the reason may be because major disasters are on the rise. According to the European Environment Agency, disasters in Europe have become more frequent, and they’re causing more damage. Storms and flooding have been the costliest hazards, but extreme temperatures, earthquakes and other geophysical hazards and technological accidents have also taken their toll.
At the same time, data and analytics are improving. For parametric insurance to work effectively, we need reliable models and risk indices. We have those now.
This means that just as the need for new insurance products rises, we have the tools needed to develop these products.
Fill in Your Protection Gaps
Parametric insurance policies are well-suited to a variety of personal and commercial lines, and policies may provide coverage for certain natural disasters as well as agricultural losses and terrorism and cyber events.
At Costero, we have placed parametric products in a wide range of classes, including terrorism and cyber, hurricane, tornado, and dairy farm agricultural. Contact us to learn more.