2023-09-23 11:01:20
Among the great variety of insurance that companies make available to us, whether to protect assets such as homes and vehicles, cover civil liability towards third parties or those we hire for our health or unforeseen events during trips, there are some that are not so well known: parametric insurance.
However, it is worth knowing what are parametric insurance and when it is convenient for us to hire them. This is what you have to take into account to see if you should have one and what you should consider about it.
What is parametric insurance
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And parametric insurance is one that is hired based on a specific event, such as a natural catastrophe, and the amount that is estimated that could be lost based on previous estimated data. In this way, it establishes a predefined compensation if that event occurs with certain characteristics.
That is, if you live in an area where floods or the hurricanes, a parametric or parameterized insurance coverage will cover such circumstances. The cubic meters of water or the intensity of the hurricane will be one of the parameters used to calculate it, while the other parameter will be the affected area. Within this area, various risks and situations that may arise in the event of such an event will be insured.
For practical purposes, there are three aspects that are taken into account: the risk to coverhe index value or the threshold level at which those risks begin to cause harm and the maximum payment that will be carried out. Furthermore, the parametric policies They are established in a personalized way, depending on the client’s budget and the willingness to assume more or less risks.
Advantages and disadvantages of parametric insurance
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The details and studies of this type of insurance contracts make it possible to predict as much as possible amount of compensation to receive in each case, in an adjusted manner. That way, if the accident or event occurs, insurers can make payments quickly. As a result, among the main advantages of parametric insurance are the promptness of payment of compensationhe time saving and the elimination of management expenses and claims administration.
Keep in mind that if you have contracted parametric insurance, the insurer can pay you in days or a few weeks after the event that covers the damages you have suffered or that has affected you has occurred.
Furthermore, this type of message minimizes expenses as much as possible, since with this type of insurance neither appraisers nor lawyers are no longer necessary, as there is no quantification of damages or verification of losses. However, therein lies its main disadvantage, since damages are not assessed to calculate compensationbut this is already estimated based on all the previous parameters agreed with the insurer.
Types of parametric insurance
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In the most common area for which we can resort to contracting parametric insurance, those related to catastrophes and natural risksit is necessary to differentiate between two types of insurance: first generation and second generation.
Los first generation parametric insurance They respond to events of a certain severity, such as a force five hurricane or a magnitude seven earthquake, for example. Those of second generation They are somewhat more complex, since they are activated when the risk reaches some previously established intensity in a certain location.
When to take out parametric insurance
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On a personal note, it is worth assessing the fact that take out parametric insurance when you live in an area where Torrential rainstemporary hurricane winds or strong snowfallas well as other natural disasters such as Volcanic eruptions. The coverage of these policies can protect you from each of these circumstances.
As far as companies are concerned, parametric insurance is recommended in those related to the agriculturewhich can see how crops are lost due to pests or weather phenomena, and for those businesses whose production is related to renewable energy, since there may be problems if there are problems in the supply of those natural resources. If it depends on wind energy and there is no wind, or on hydraulic energy and there is a drought, the company may find itself in difficulties.
Others business sectors related to the turismowho are affected by climate conditions and meteorological phenomena, also frequently take out this type of insurance, from Hotels and restaurants until airlines and cruise lines.
In any case, with the climate change and the most frequent and extreme weather eventsparametric insurance is on the rise, since any company or individual can be affected by floods, DANA effects, heavy snowfalls, cyclones and the like that cause devastating damage.
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