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Parametric insurance

Parametric insurance pays an amount agreed in advance when an objective, measurable event occurs: rainfall above a threshold, an earthquake of a certain intensity or several days of downtime after a cyber attack. It does not wait for the loss to be adjusted.

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Key points

Parametric insurance pays an agreed amount when an objective index, such as wind speed or cumulative rainfall, exceeds a threshold. As a result, payment is much faster than under traditional insurance, which it complements but does not replace.

The event is measured using independent data, such as weather stations, satellites, seismic networks or certification by a cyber security expert, and the policy sets out a payment schedule. As a result, payment is much faster than under traditional insurance.

It complements, rather than replaces, property, business interruption or cyber insurance: it covers high deductibles and risks that the traditional market does not insure or insures only at a high price, and it can work as a primary layer, as an excess layer or within a captive.

Where it can be used

Natural catastrophes
Flood, hail, earthquake, wind and storms affecting industrial buildings, plants or warehouses.
Weather and agriculture
Excessive rainfall, drought, frost, extreme temperatures or wildfire that reduce the harvest or business activity.
Energy
Lack of wind at wind farms or of solar radiation at solar plants that reduces output.
Cyber
An amount for each day of downtime after an intrusion, once the agreed waiting period has elapsed.
Inland waterway transport
River levels that prevent or restrict the movement of goods by water.
Events
Cancellation or loss of revenue due to adverse weather.

What to check

The index
What data is measured, who measures it and where.
The threshold and payment schedule
The value at which payment is triggered and how much is paid in each band.
Basis risk
The possible gap between what the index pays and the company's actual loss.
The limit
In Spain, the indemnity may not exceed the actual loss suffered (Insurance Contract Act (Ley de Contrato de Seguro), Article 26).

Frequently asked questions

How does it differ from traditional insurance?

Traditional insurance pays for the loss once it has been adjusted. Parametric insurance pays an agreed amount as soon as it is confirmed that the index has exceeded the threshold.

Does it replace my property or cyber policy?

No. It complements it: it covers deductibles, sub-limits or risks that the traditional policy does not cover.

How does parametric cyber cover work?

An independent expert certifies the intrusion and the recovery of the systems. After the waiting period, the policy pays an amount for each day of downtime.

What information is needed for a quote?

The location of the risks and the loss history. For cyber, the company's details, the limit and daily amount to be insured, and how its systems are organised.

Legislation cited: Insurance Contract Act 50/1980 (Ley de Contrato de Seguro), Article 26.