Parametric insurance has been around a while. It is a type of insurance that pays when specific events are triggered under agreed upon metrics prior to the occurrence. When the event happens and it meets all the agreed upon "triggers" then the insurance company must pay out. This approach to insuring loss of income catastrophes has been used successfully in covering drought events in crop insurance, or weather events for concerts, as examples.
This differs from regular insurance, which indemnifies the policy holder for their loss. Parametric insurance pays out once triggered regardless whether the policy holder has a loss or not. Once triggered it is an instant payout. No wrangling with adjusters or contract language, exclusions etc...
So business owners who want to cover business loss of income because of a future pandemic can purchase a parametric insurance policy that pays out as soon as a third party expert declares a pandemic, like the CDC or WHO.
Sounds good right? Yes but the availability of these policies is very limited. If there is going to be future coverage for the next virus, then insurance carriers or Insurance Linked Security backers are going to need to expand the market availability. Only time will tell if this occurs. My thought is they should do it soon, as there are millions of business owners who will buy the coverage as they currently experience the devastating effects of COVID 19 on their viability.
Until next time be careful out there and know your risk.
Posted by: G. Kevin Nemith , President/Managing Director CNC Insurance, Pfister Insurance. Members of the Hilb Group of the Mid-Atlantic.
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