Parametric insurance options can add value as both complements to and replacements for traditional property insurance solutions, panelists on a recent Lockton webcast said.

Along with a difficult property insurance marketplace in recent years, organizations have been challenged by the large “protection gap” between insured and uninsured natural catastrophe losses over the last three decades. Within this context, parametric insurance — also known as index-based insurance — is becoming more attractive to some insurance buyers.

“The product is designed to respond swiftly to often catastrophic events,” said Daniel Vetter, Head North America at Descartes Underwriting. “Because it is based on a modeled loss, because it based on data, the traditional claims settlement process falls by the wayside” and the product typically pays out within 20-30 days, offering greater liquidity than typical insurance products and their claims processes.

Parametric products can also offer more expansive coverage than is available via standard property insurance policies. “Parametric products do not have to have a physical damage requirement and can cover all economic loss from an event trigger,” said Mike Andler, U.S. Property Practice Leader at Lockton.

Theoretically, parametric insurance can respond to a variety of natural and manmade perils. In practice, buyers “tend to like perils that are well-understood by the investment community, such as weather or peak natural catastrophes,” said Zach Breslin, head of Lockton Re Capital Markets. These often include hurricanes and tropical storms, earthquakes, and wildfires.

Watch a replay of the webcast below for more on parametric insurance, how various solutions work, and what organizations should think about as they consider these options.