Parametric describes a type of insurance that works differently than the conventional “indemnification” insurance types (e.g. Home, Life, Auto) familiar to most consumers. Parametric insurance involves a special type of financial contract that transfers money to policyholders upon the occurrence of specific, predefined events.
Parametric insurance contracts define the characteristics or thresholds of events that will trigger payments. Those characteristics are also known as the events’ “parameters” (thus the name “parametric.”)