What is Parametric Insurance?

← Learning Center / Fundamentals

4 min read

Parametric insurance is a type of coverage that pays out a predetermined amount when a specific, objectively measurable event occurs — without requiring you to prove a loss.

How it works:

Instead of filing a claim and waiting for an adjuster to assess damage, parametric insurance uses a predefined trigger (a parameter) — like wind speed exceeding 74 mph within 30 miles of your client's location, or rainfall exceeding 3 inches in 24 hours. When the trigger is met, payout is automatic.

Why it matters:

Traditional insurance covers the cost of damage after it's verified. Parametric insurance covers the revenue impact of disruption — fast. Settlement in 47 seconds, not 47 days.

Key terms:

  • Trigger: The measurable weather event that initiates a payout (e.g., "Category 3+ hurricane within 50 miles")
  • Strike level: The threshold the trigger must reach
  • Payout amount: A predetermined fixed sum, not tied to actual damage
  • Basis risk: The risk that the trigger fires without major business impact (or vice versa) — important to explain to clients

    • Access AI tools to act on what you've learned. Create a free ParaSure broker account →

    View all articles