What Is Parametric Insurance?

The property insurance landscape is changing rapidly, and one of the newest trends gaining attention is parametric insurance. Unlike traditional policies, which reimburse you for the actual costs of repairing or replacing damage, parametric insurance pays out a fixed amount when a predefined event—or “trigger”—occurs.

That trigger could be things like wind speeds above 100 mph, rainfall exceeding six inches in 24 hours, or an earthquake reaching a certain magnitude. Once the trigger is confirmed by independent data sources (like weather stations or satellites), the payout is made automatically—often within days.

At first glance, it sounds like the perfect solution. No adjusters. No disputes. No delays.

But like most things in insurance, the reality is more complicated.

Here’s an example: Think of parametric insurance like buying a flight delay guarantee: if your flight is delayed more than two hours, you automatically receive $500. It doesn’t matter if your actual costs were $100 or $1,000—the payout is the same.

Now imagine applying that principle to a multimillion-dollar property after a hurricane or flood. That’s where the limitations become more clear.

The Hidden Downsides of Parametric Insurance

While parametric insurance has a place in today’s market, property owners must recognize its risks and shortcomings:

1. Basis Risk: The Trigger Doesn’t Always Match Reality

   • If your building suffers $2 million in wind damage but the local weather station records 95-mph wind speeds—just below the 100-mph trigger threshold—you may receive no payout.

   • Conversely, if the trigger is met but your property sustains little damage, you could still receive a payout.

   This mismatch—known as “basis risk”—is the single largest flaw in the model.

2. Not Designed to Cover Full Losses
   Parametric policies are typically meant to provide quick liquidity, not to restore your property. Without traditional insurance, you may be left severely underfunded.

3. Higher Cost for Customization
   The more you try to tailor a policy to reduce basis risk, the higher the premium becomes. Many property owners pay more but still face significant coverage gaps.

4. False Sense of Security
   The speed and simplicity of payouts can create the impression that you are “fully protected.” In reality, parametric policies should always be considered supplemental coverage.

At Marshall Adjusting Group, we’ve been representing policyholders for over 100 years, and we know one thing with certainty: after a loss, the devil is always in the details.

Parametric insurance may provide quick cash flow, but it does not eliminate the need for experienced adjusters. In fact, it makes our role even more critical:

• Policy Review & Gap Analysis – We examine how parametric triggers interact with traditional policies to ensure you’re not left exposed.

• Claims Strategy – We structure claims to maximize recovery by combining parametric payouts with comprehensive policy benefits.

• Advocacy Against Underpayment – Even with traditional coverage, insurers often underpay. Our team ensures every eligible dollar is pursued.

• Trusted Recovery Partner – With over a century of experience, we provide the clarity, expertise, and relentless advocacy property owners need in today’s shifting insurance environment.

The Bottom Line for Property Owners

Parametric insurance is not “one size fits all”. It offers speed and predictability, but not certainty or completeness. Property owners who rely on it exclusively are taking on more risk than they realize. That’s why, despite its rising popularity, it must be paired with expert adjusters and traditional coverage.

At Marshall Adjusting Group, our philosophy is simple: every property a fair and complete recovery, not just a fast payout. We’ve guided clients through hurricanes, floods, fires, and every type of property disaster since 1912—and in every case, having an expert advocate on your side has made the difference between partial relief and full financial recovery.

Don’t leave your recovery to chance. Parametric insurance can provide speed, but only expert guidance ensures you receive the full compensation you deserve. Contact Marshall Adjusting Group today to review your policies, assess gaps, and protect your property.