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Parametric Insurance: A Modern Solution for Climate-Related Risks

Parametric Insurance: A Modern Solution for Climate-Related Risks

In the last decade, climate change has led to an increase in catastrophic events like cyclones, floods, and storms. Traditional insurance covers these perils, but the complexity of claim settlements often results in delayed payouts, which can strain the financial stability of those affected. This is where parametric insurance steps in as a game-changer.

What is Parametric Insurance?

Parametric insurance offers a straightforward and efficient alternative to traditional indemnity-based insurance. Instead of compensating for the exact loss incurred, it provides a pre-agreed payout based on the occurrence of a specific event. Here’s how it works:

  1. Parameter-Based Coverage: Unlike traditional insurance, which requires proof of damage, parametric insurance is triggered by predefined parameters. These parameters could include metrics like rainfall in millimeters, earthquake intensity on the Richter scale, wind speed during a cyclone, or solar radiation levels.
  2. Simplified and Quick Payouts: When the agreed parameter exceeds the trigger point, a payout is automatically made, usually within 30 days. There’s no need for a physical survey or assessment of the damage, making the process faster and less cumbersome.
  3. Tailored to Specific Risks: The insurer, after analyzing the specific risks (such as location, size, and potential perils), offers customized trigger points and payout factors. These are mutually agreed upon by both parties before the policy is finalized.
  4. Independent Monitoring: An independent third-party data provider monitors the parameters during the policy period. If the trigger point is exceeded, the payout is processed, providing quick financial relief during a crisis.

Why Parametric Insurance Matters?

In a world where climate-related risks are becoming more frequent and severe, parametric insurance offers a way to ensure liquidity and financial stability in the aftermath of a disaster. By simplifying the claims process and offering quick payouts, it helps businesses and individuals recover faster and more efficiently.

For any insurance solutions, please contact Beacon Insurance Broker Pvt Ltd at https://www.beacon.co.in/ 

Insurance is a subject matter of solicitation

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