Insurance product where indemnification is triggered automatically by a measurable threshold (wind speed, rainfall, earthquake magnitude), without loss adjustment.
Parametric insurance, also called index-based insurance, is a product whose indemnity payment does not depend on assessing the insured's actual losses but on the occurrence of a pre-defined physical or economic indicator, called a parameter or index. When the index exceeds the contractual threshold, the insurer automatically pays the agreed amount, without any expert assessment or proof of damage. This architecture has considerable advantages over traditional insurance: speed of settlement (days rather than months), absence of adjustment costs, low moral-hazard risk, and the ability to cover risks that are difficult to assess, such as agricultural drought or sovereign risk. Its main drawback is basis risk: if the insured's actual losses are significant but the index does not reach the threshold, no indemnity is paid, and vice versa. The parametric market has developed in several directions. In agriculture, rainfall or average zone-yield indices protect smallholders in emerging countries. In natural catastrophes, parametric products cover governments against cyclones (CCRIF in the Caribbean) or earthquakes (ARC in Africa). In reinsurance, parametric-trigger cat bonds are the capital-market equivalent. Several insurtech start-ups are developing parametric cyber products, notably against cloud outages measured by downtime.
A Caribbean island state subscribes to parametric cyclone cover through the Caribbean Catastrophe Risk Insurance Facility. If a category-3 or stronger cyclone passes within 150 km of the capital, a 50 million dollar payment is triggered within 14 days, without waiting for a damage survey, enabling immediate financing of emergency operations.
parametric insurance, assurance indicielle, index-based insurance, assurance trigger