Parametric insurance solutions for weather, catastrophe and business interruption risks in New York and New Jersey, subject to underwriting and market availability.
Available options depend on licensed markets, product approvals and carrier underwriting.
Illustrative example: A commercial property owner may explore a policy with a predetermined payment if an agreed wind-speed threshold is reached at a specified measurement location during the policy period. The actual trigger, data source, payment amount, geographic area and policy conditions would be determined by the insurance carrier and stated in the policy.
Traditional insurance generally pays based on the amount of covered physical loss after a claims adjustment process.
Parametric insurance works differently. It provides a predetermined payment when a specified event reaches an agreed trigger or threshold. The trigger may be based on an independently verified measurement such as wind speed, rainfall, temperature, earthquake magnitude or another defined index.
The policy, trigger, measurement source, payment amount and applicable conditions must be carefully defined in the contract.
EDX Brokers helps commercial clients explore whether a parametric solution may complement their existing insurance program.
A parametric policy generally includes:
A specific insured event;
A measurable index or parameter;
A defined trigger threshold;
An independent data or verification source;
A predetermined payment amount or payment schedule;
A policy period and geographic area;
Specific exclusions, conditions and reporting requirements.
For example, a policy may provide a predetermined payment if a specified weather measurement at an agreed location reaches a defined threshold during the policy period. The actual amount of physical damage may not be the sole basis for payment.
The exact trigger and payment terms depend on the policy wording and underwriting structure.
Parametric insurance may be considered for certain risks involving:
Severe weather;
Wind and named storms;
Excessive rainfall;
Flood-related liquidity needs;
Drought or temperature-related exposures;
Earthquake or other catastrophe events;
Business interruption concerns;
Event cancellation or weather-sensitive operations;
Supply chain or contingent business interruption risks;
Gaps, deductibles or waiting periods in traditional coverage.
Availability depends on the exposure, location, data quality, modeling, carrier appetite and policy structure.
Parametric insurance is generally not a replacement for a complete commercial property or casualty insurance program.
It may be designed to complement traditional coverage by helping a business:
Access funds more quickly after a qualifying event;
Address a large deductible or waiting period;
Provide liquidity for emergency expenses;
Support business continuity;
Cover certain risks that may be difficult to insure on a traditional indemnity basis;
Add an additional layer of protection for a defined catastrophe exposure.
A parametric payout is based on the agreed trigger. It is not necessarily based on the exact amount of the insured’s actual loss.
Parametric insurance includes basis risk. This means the payment triggered by the policy may not exactly match the actual economic loss.
A business may experience damage without the agreed parameter being triggered. Conversely, the parameter may be triggered even if the business’s actual loss is lower than the predetermined payment.
For that reason, careful policy design is important. The trigger, measurement location, data source, threshold, payment amount and geographic area should be matched as closely as possible to the business exposure.
The National Association of Insurance Commissioners identifies basis risk as a key consideration because a policyholder’s actual loss may differ from the amount paid under the parametric contract.
For certain laundromats, commercial property owners and LRO portfolios, parametric coverage may be considered in connection with:
Severe weather;
Wind or named storm exposure;
Flood-related cash-flow needs;
Business interruption concerns;
Multiple-property portfolios;
High deductibles;
Waiting periods;
Emergency expenses following a catastrophe;
Properties located in areas with significant weather exposure.
Parametric insurance does not replace the need to review building coverage, business income, equipment breakdown, general liability, flood coverage or commercial umbrella insurance.
EDX Brokers can help you:
Understand the specific risk you want to transfer;
Review your existing insurance program and deductibles;
Identify the event or index that may be relevant;
Review the proposed measurement source and geographic area;
Discuss possible limits, thresholds and payment structures;
Submit the exposure to appropriate specialty markets;
Compare the proposed structure with traditional insurance options;
Coordinate the parametric coverage with your existing insurance program.
A parametric insurance review may require:
Business and property locations;
Construction and occupancy details;
Historical loss information;
Current insurance policies;
Business income information;
Desired trigger event;
Desired payment amount;
Deductibles and waiting periods;
Relevant contracts or lender requirements;
Exposure to wind, flood, rainfall, temperature or other events;
Multiple-location schedules, when applicable.
If your business is exposed to severe weather, catastrophe events, high deductibles or business interruption concerns, contact EDX Brokers to discuss whether a parametric insurance solution may be appropriate.
