Parametric Insurance Policy - Definition, Coverage, Exclusions, Companies, Benefits, Quotes

WWhat is a Parametric Insurance Policy? - Definition

A Parametric Insurance Policy, also known as a Weather Insurance Policy, is a type of policy that pays out a pre-agreed amount automatically when a specific, predefined event occurs. A Parametric Insurance Policy protects against specific risks associated with an index or a predefined set of parameters rather than a policyholder’s loss experience. It provides coverage against the deviation of a particular index from the predefined threshold indicating the losses incurred by the policyholder. The Policy makes payments on triggering of specific events based on objective, independently verified data.
Some examples of triggering events include:

1. Cyclone
2. Earthquake
3. Flood/Inundation
4. Solar Irradiation

How does a Parametric Insurance Policy work?

A Parametric Insurance Policy pays out a claim if a covered event is triggered. The working of a Parametric Insurance Policy is explained in detail below:

1. Trigger Event: The Insurance Company and the Policyholder determine a specific, measurable event (parameter) such as Natural disasters like Hurricane wind speed, earthquake magnitude, flood water levels or Weather Conditions like Droughts based on rainfall levels, heatwaves based on temperature thresholds that will trigger a payout.
2. Automatic Payout: The Policy pays out a fixed, pre-agreed sum as soon as the trigger event occurs. The Trigger Event is determined by data obtained from an independent third-party data source. The most important benefit of a Parametric Insurance Policy is that the Payout Amount is not dependent on the loss suffered by the Insured. If the trigger event occurs, the Policy immediately pays out the Claim Amount to the Insured. This saves time in conducting the loss surveys and determining the loss amount.

What are the benefits of Parametric Insurance?

1. Fast payouts: A Parametric Insurance Policy provides quick claim payouts as the Claims are determined on a pre-defined parameters like earthquake magnitude or solar radiation. There is no need for loss surveys and determination of loss amounts
2. Transparency: The Claim Process is transparent as the claim triggering parameters are clearly defined.
3. Customisation: The Parametric Insurance Policy can be customized to cover a variety of events such as Solar Irradiance, Wind Generation, Earthquakes, Floods, Droughts etc.

Who needs to purchase a Parametric Insurance Policy?

Parametric insurance is well-suited for high-severity, low-frequency events where reliable third-party data is available.

1. Renewable Energy: A Parametric Insurance Policy can be constructed to cover Revenue loss for wind or solar farms when production is impacted by suboptimal weather conditions.
2. Agriculture: Farmers can use Parametric Insurance Policy to protect against crop failure due to weather events like drought or excessive rainfall.
3. Infrastructure Companies: Infrastructure Companies can use a Parametric Insurance Policy to protect against losses from natural calamities which cause a disruption in business operations and loss of profits.

What are the exclusions under a Parametric Shortfall Insurance Policy?

The exclusions under a Parametric Insurance Policy are as follows:

1. Any Loss due to outbreak of a Pandemic is not covered under the Parametric Insurance Policy
2. Any Loss due to War or Invasion is not covered under the Parametric Insurance Policy
3. Any Loss due to wilful, malicious or dishonest act or omission by the Insured is excluded
4. Any Loss due to Manipulation of Weather Readings is also excluded under the Policy

Which Insurance Companies offer a Parametric Insurance Policy in INdia?

The Insurers which offer a Parametric Insurance Policy include:

1. HDFC Ergo General Insurance
2. New India Assurance Company
3. Bajaj Allianz General Insurance Company
4. Tata AIG General Insurance
5. ICICI Lombard General Insurance

What is the difference between a Traditional Insurance Policy and a Parametric Insurance Policy?

The Key differences between a Traditional Insurance Policy and a Parametric Insurance Policy are as follows:

Get Best Quotes for Parametric Insurance with Qian!

Several insurance companies like HDFC ERGO General Insurance Company Limited, ICICI Lombard General Insurance Company, Tata AIG General Insurance Company, Bajaj Allianz General Insurance Company and New India Assurance Company Limited offer Parametric Insurance. Qian is a leading Insurance Broker for Parametric Insurance Policy. If you wish to purchase a Parametric Insurance policy, reach out to us at insurance@qian.co.in or 📞 022-35134695 . We would be glad to assist you!