Parametric Insurance

Parametric Insurance

Parametric insurance is a transformative model that provides pre-agreed payouts based on a predefined trigger event. Unlike traditional indemnity insurance, which reimburses for actual damages after lengthy assessments, parametric insurance simplifies the process by tying payouts to specific, measurable parameters, such as: Wind speed, Rainfall levels, Earthquake intensity, Business-related metrics such as foot traffic or power outages.

At Matrix, we recognize that traditional insurance solutions often fail to meet the needs of risk buyers grappling with significant coverage gaps. These gaps are particularly evident in catastrophe-prone areas and for risks such as non-damage business interruption, loss of attraction, ingress/egress issues, and exclusions or sub-limited coverage. To address these challenges, we offer innovative Parametric Insurance solutions that provide fast, transparent, and dependable financial protection.

When the predefined trigger is met or exceeded, the payout is automatically released, providing swift and reliable financial relief without disputes or delays.

Who Can Benefit from Parametric Insurance?

  • Commercial Organisations: Businesses in urban areas facing risks such as flooding, adverse weather, or market disruptions. For example, shopping centers can insure against loss of foot traffic due to extreme weather, ensuring financial stability even during unpredictable conditions.
  • Public Sector Entities: Municipalities and regional governments preparing for disaster response and resilience.
  • Renewable Energy: Mitigating weather-related fluctuations in solar and wind power generation.
  • Agriculture: Protecting against drought, excessive rainfall, and other weather-driven crop yield risks.
  • Hospitality and Tourism: Addressing loss of attraction and adverse weather impacts on visitor numbers.
  • Manufacturing and Retail: Covering non-damage business interruptions like supply chain disruptions due to extreme weather.

Key Features of Parametric Insurance by Matrix Global:

Independent Triggers

Payouts are tied to measurable, objective thresholds reported by trusted third-party sources. For instance, data on wind speeds or rainfall can be obtained from national meteorological services, ensuring transparency and reliability. Triggers can also extend to economic indices, power outages, or even crop yield shortfalls, depending on the coverage requirements.

Speed and Transparency

Claims are resolved quickly because the payout mechanism is binary. If the predefined event occurs, coverage is confirmed within days, and funds are typically disbursed within weeks. This eliminates the need for protracted damage assessments or disputes over coverage.

Flexibility and Customization

Parametric insurance expands the realm of insurability by addressing exposures traditionally considered uninsurable. The broad applicability of triggers allows clients to design coverage that aligns with their unique risk profiles and business continuity plans. For example, payouts can be tailored to reflect the financial impact of rainfall exceeding 200 mm in 48 hours or an earthquake of magnitude 6.5 or higher in a specific region.

Transparency

The predefined triggers in parametric insurance provide unmatched clarity, eliminating potential for mismanagement or corruption in claims handling. This ensures a fairer pricing structure, as premiums reflect clearly defined risks without hidden complexities. Transparency fosters trust between insurers and policyholders, making parametric insurance a dependable and equitable solution.

How Parametric Insurance Works

Defining the Trigger Event: Collaborate with Matrix Global to identify the risks you need to cover. Triggers could include weather thresholds (e.g., wind speeds above 120 km/h) or operational metrics (e.g., a 50% drop in visitor foot traffic).

Selecting Independent Data Sources: Use reliable third-party data providers, such as meteorological agencies or seismic monitoring networks, to track the triggers.

Customizing the Policy: Design a payout structure that reflects your specific financial exposure. For instance, $100,000 might be paid out for every 50 mm of rainfall above a set threshold.

Monitoring and Settlement: Once the trigger threshold is reached, funds are disbursed promptly to help mitigate losses and facilitate recovery.

Real-World Applications of Parametric Insurance

Extreme Weather Events: A wind farm operator in Europe uses parametric insurance to secure payouts when wind speeds drop below a certain threshold, protecting against revenue losses from decreased power generation.

Earthquake Resilience: A manufacturing facility in a seismically active region insures against earthquakes, with payouts tied to ground-shaking intensity reported by an independent seismic agency.

Flood Protection: A municipality in a flood-prone area receives payouts based on rainfall levels exceeding 150 mm in 24 hours, allowing immediate deployment of disaster response funds.

Tourism Protection: A coastal resort relies on visitor numbers during peak seasons to sustain profitability. Adverse weather, such as a week of persistent storms, results in significantly reduced footfall. Parametric insurance provides a payout when weather data confirms rainfall exceeding a predefined threshold over consecutive days, ensuring the resort can cover operational costs despite the downturn.

Why Choose Matrix Global

At Matrix Global, we are committed to bridging the protection gap for Organisations. Parametric Insurance provides the agility, transparency, and reliability required in today’s rapidly evolving climate risk landscape. Matrix Global combines decades of risk management expertise to deliver innovative, bespoke parametric insurance solutions. Our approach ensures fairness and efficiency, while our global perspective and local insights enable us to serve diverse industries and geographies effectively. Every policy is customized to meet the unique risk profile of each client, providing dependable and relevant coverage for even the most complex climate risks.

Contact Brad McGill, Managing Director Capital Markets

Brad McGill

E: bmcgill@matrixglobalusa.com
T: +44 (0)203 457 0916
M: +44 (1)205 835 2875