Glossary

Parametric insurance

Coverage that pays a pre-agreed sum when a measured event, such as a wind speed or earthquake magnitude, crosses a set threshold, without proof of actual loss.

Also called: index-based insurance, parametric coverage, parametric trigger, parametric cover

Parametric insurance pays on an index, not on an adjusted loss. The policy names a trigger, such as an earthquake of a set magnitude within a set radius of your site, sustained wind speed at a named weather station, or rainfall below a threshold, along with a payout scale. If an independent data source such as the U.S. Geological Survey or the National Weather Service confirms the trigger was met, the insurer pays the agreed amount, often within days, whether your real loss was larger or smaller.

Say a resort (a hypothetical) buys $2 million of parametric cover that pays in full when hurricane-force winds are recorded at a station near the property. If the station records them, the resort is paid. No adjuster, no proof of loss.

The attraction is speed and flexibility. Parametric covers can respond to perils standard policies exclude or limit, such as flood or earthquake, and to business interruption without physical damage, and they can fund a deductible or a gap. The drawback is basis risk: the payout and the actual loss can diverge. A building can be wrecked while the station reading stays under the threshold, leaving nothing, or a payment can arrive for minor damage. For that reason parametric coverage usually complements an indemnity policy rather than replacing it. Read the trigger definition, the data source and the payout table as carefully as any exclusion. The guide on parametric insurance for businesses covers where it fits, and catastrophe bond describes a related capital-markets structure.

Last reviewed October 10, 2026

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Related terms

Catastrophe bond A security sold to investors that pays interest but loses principal if a defined catastrophe occurs, giving an insurer or reinsurer multiyear protection. Difference in conditions (DIC) A stand-alone property policy that fills gaps in a primary policy, usually adding flood, earthquake and broader terms, often from surplus lines insurers. Deductible The amount of a covered loss the policyholder bears before the insurer pays, set in the policy and subtracted from the loss. Business income Property coverage that replaces net income and continuing operating expenses, including payroll, while a covered physical loss suspends operations. Catastrophe model Software that simulates thousands of hurricanes, earthquakes and other disasters against a portfolio of locations to estimate insured losses and odds.

Related guides

Catastrophe bonds and ILS: how they work and who they affect A cat bond lets investors fund disaster reinsurance and lose principal if a trigger is hit. How it works, what 2026 data shows and why buyers feel it. System failure, cloud outages and the CrowdStrike lesson How cyber policies treat non-malicious outages and cloud failures, what the 2024 CrowdStrike and 2025 AWS outages showed, and which policy words decide payment. Parametric insurance for businesses How parametric policies pay a fixed amount when a measured trigger is hit, where they fit beside property cover, what basis risk means and what to check. Straight-through claims processing: what automated claims mean for your business How straight-through (touchless) claims work, which commercial claims qualify, which laws still apply and what to do if an automated payment is too low. Supply chain risk and insurance: what is covered and what is not How to map and score supplier risk, which insurance lines respond to supply chain losses, and the disruptions no policy covers: tariffs, strikes, insolvency. Systemic cyber risk and cyber catastrophe bonds Why one cloud outage or worm can hit thousands of insureds at once, how reinsurers and cyber cat bonds spread that risk, and what it means for your own policy.

Related insurers

Swiss Re Corporate Solutions Swiss Re's commercial insurance arm: high-capacity property, casualty, professional, surety, stop loss and captive fronting for large U.S. companies.