## Executive Summary - Smart Contracts work very well with a (relatively) new type of insurance called "parametric insurance" - Under a Parametric insurance contract, the payout is triggered automatically if and when certain objective criteria are met such as - a payout if the temperature is higher than a certain number - earthquake insurance that pays out based a formula based on (1) the intensity of the earthquake on the Richter scale and (2) the distance between the policyholder's house and the epicenter of the earthquake - Many buyers and sellers of insurance are eager to explore parametric insurance, because it has the potential to vastly reduce costs and delays - Innovative players are looking for new ways to harness new data to help provide new types of insurance via parametric insurance ## How Parametric Insurance Is Different From Traditional Insurance As Matthew Grant of Instech London explains, parametric insurance pays out based on a pre-defined, objective formula, rather than a (messy but perhaps more accurate) estimate of actual losses: >Traditional indemnity insurance, the kind we are all familiar with, pays out based on the cost of the loss incurred, as decided by your insurer and their loss adjuster. Parametric insurance pays out when a pre-defined event occurs and breaches a pre-agreed figure or index. Examples of perils covered and typical triggers include hurricane (windspeed), flood (height), earthquake (shake intensity), pandemic (number of infections) or cyber (reported data breach).[^1] Similarly, Michael Elliot explains that parametric insurance sacrifices nuance for simplicity -- and cost savings: >Whereas traditional insurance often involves a complex rating formula and detailed policy wording with the objective of indemnifying the insured for actual losses incurred, parametric insurance is far more straightforward—and somewhat limited. Parametric insurance is essentially a distilled if-then statement. If rainfall during a hurricane exceeds a stipulated amount, then a payout of a specified amount will be triggered.[^2] ## Companies that Provide Parametric Insurance Parametric Insurance Part Two: Ten Companies Worth Knowing About https://www.linkedin.com/pulse/parametric-insurance-part-two-ten-companies-worth-knowing-grant/ ## Sources [^1] Parametric Insurance Part One: Your fast track to expertise, by Matthew Grant, 2020-04-28 https://www.linkedin.com/pulse/parametric-insurance-your-fast-track-expertise-part-matthew-grant/ [^2] Rethinking the Limits of Parametric Insurance, by Michael W. Elliot, Insurance Journal, 2019-09-24 https://www.insurancejournal.com/news/international/2019/09/24/540903.htm