/ Updated / 9 min read
Specialty underwriting team - Global RE Underwriting
Key takeaways
- Parametric structures deliver liquidity quickly where traditional loss adjustment is slow or unavailable.
- Basis risk is the trade-off and must be measured and explained before placement.
- Good triggers are independently verifiable, hard to manipulate and closely tied to economic loss.
Speed is the core value
Parametric structures can deliver liquidity quickly when traditional loss adjustment is slow, unavailable, or too costly relative to the protection need.
The trade-off is basis risk, which must be measured and explained before the cover is placed.
Trigger design decides credibility
A good trigger is independently verifiable, difficult to manipulate, and closely related to the economic loss the cedant is trying to manage.
Rainfall, wind speed, earthquake intensity, and infrastructure disruption indices can all work, but only when the data source and payout curve are transparent.
Where the structure fits
Parametric cover is particularly useful for public-sector, municipal, engineering, marine, and infrastructure exposures where quick funds can reduce downstream loss.
Global RE reviews trigger governance, payout adequacy, and the cedant explanation of basis risk before considering support.
Frequently asked questions
- What is parametric insurance?
- Parametric insurance pays a pre-agreed amount when a measurable index, such as rainfall, wind speed or earthquake intensity, crosses a set threshold, without a traditional loss adjustment.
- What is basis risk in parametric insurance?
- Basis risk is the chance that the payout does not match the actual loss: paying when losses are small, or paying too little when they are large.
