SRS Altitude LinkedIn Series Episode 5: What is Parametric Insurance?

Parametric insurance is a fresh take on risk transfer, setting itself apart from traditional indemnity-based insurance. Instead of compensating for actual losses, parametric insurance pays a predetermined amount when specific event parameters are met, such as the occurrence and intensity of a natural disaster. These events are measured using objective data like weather conditions or seismic activity.

The beauty of parametric insurance lies in its speed, transparency, and predictability. When predefined conditions are met, claims are processed quickly, helping recovery efforts move faster. To offer parametric insurance, insurers need a few essentials:

1. The buyer must have an insurable interest that would be negatively impacted by the event (e.g., owning a building in an earthquake zone).
2. Reliable, immediate data to measure event conditions.
3. Objective data, often from independent third-party providers like government entities.
4. Sufficient historical data to assess event probabilities.

In short, parametric insurance offers a streamlined, efficient way to transfer risks with clear, data-driven triggers.