EconomyIn bad weather, parametric insurance

In bad weather, parametric insurance

(Expansion) – When I hear so much news about heat waves in Europe and the United States, hurricanes or heavy rains in Mexico and other places, as well as the now traditional “month of tremors”: September, I think a little about what has come the insurance sector in the coverage of this type of natural phenomena.

Although it is true that we still have a long way to go to promote the culture of insurance, it is also true that we have innovated in some special situations, such as natural disasters, which are becoming more frequent.

Some will say that all these phenomena in nature are the result of the climate change that we are experiencing all over the planet, others will say that they are normal situations, I am not going to discuss that now, what I want to comment on is that we can currently secure our heritage (house , terrain, workplace, earthquake, etc.) of natural disasters or meteorological events.

It is not that coverage of this type of situation was not carried out before, but now there is the possibility that compensation for these situations be made immediately and not wait to verify everything that happened to achieve payment for this type of natural disaster. .

I believe that an advance in the insurance industry has been the so-called parametric insurance, the name may not say much, but the reality is that, in this type of insurance, coverage is activated if the parameters of a natural catastrophe are met or exceeded. Perhaps someone will comment or wonder what I meant by this definition and it would be better to comment that insurance coverage kicks in if an earthquake, tropical cyclone or flood occurs.

The advantage of this insurance now is that we no longer have to wait for everything that this type of disaster leaves in its wake to be verified, but rather that the coverage is applied almost immediately and I say almost immediately because there are still some procedures that to make, but what is important is the fact of not having to wait so long to be able to count on that payment and recover a little of our assets in case it is affected.

Something that is important to clarify is that the solutions of this insurance are not designed to replace another type of insurance, but rather to complement the coverage programs of some loss.

This type of insurance can cover the protection gaps left by the indemnity insurance, for example, the interruption of contingent business, as was the case of the drought that occurred in Nuevo León and that directly impacted the brewing industry and that, due to the scarcity of water, contingency measures had to be applied.

In this and other types of cases, parametric insurance can also apply here, anticipating an adverse situation at a given time.

There are several differences between traditional property insurance and parametric insurance. Among the most prominent are:

– Physical damage to the insured’s property is not required.
– It is necessary to comply with the parameters established in the contract (magnitude of the earthquake, wind speed or millimeters of rain, among others).
– Acceptance of consequential losses (loss of earnings) without having physical damage to the properties.
– Parameters are developed based on customer needs.
– Deductibles do not apply.
– There is no adjustment process; however, a loss declaration certificate is required, and in some cases the insurance market may request proof of loss.

All these situations, I think, help us to consider that parametric insurance is thought more of the immediacy of covering the impact on our assets and thus be a little calmer that we can recover something in the face of any natural disaster event.

Editor’s note: Octavio Careaga is an actuary graduated from the Autonomous Technological Institute of Mexico and has more than 30 years of experience in the insurance and reinsurance sector in Mexico. He is passionate about American football and currently serves as Director of THB Mexico and the Latin America region. Follow him on . The opinions published in this column belong exclusively to the author.

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