Now that property and casualty insurance coverage terms for business disruption losses are gradually tightening, a singular insurance product used primarily to protect businesses against weather-related losses—parametric insurance—is increasingly being marketed as a compelling option.
Executive SummaryProperty insurance brokers are reimagining parametric insurance for a diverse array of businesses, marking a milestone in the product's historical development. Here, insurance journalist Russ Banham talks to brokers and underwriters about the benefits of the add-on coverages that include fast-track claims processing and gap fillers for non-physical damage-related interruptions in business, offering novel examples that include construction delays for wind farm projects, winter freezes impacting vineyard revenues and livestock mortality.
The atypical product is a form of insurance that provides a pre-established payment to the insured upon the occurrence of a specific catastrophic event. (The term “parametric” derives from the parameters established to trigger the payment.) Historically, this event (for the most part) has been the magnitude of an earthquake or the wind speed of a hurricane, each metric verifiable by an independent third-party source like the U.S. Geological Survey (USGS) or the National Oceanic and Atmospheric Administration (NOAA).
The novel insurance product typically has been used to absorb the business continuity repercussions of a low-frequency, high-severity event like a once-in-a-century storm that wipes out an entire field of crops. (The agricultural sector has been a primary market.) Now that insurance coverage terms and conditions are tightening for business interruption exposures, several insurance brokers and carriers are reimagining parametric insurance for use by a more diverse array of businesses, marking a milestone in the product’s historical development.