Glossary

Parametric insurance

Insurance that pays a preset amount when a measured trigger, such as earthquake intensity or wind speed near your home, is hit, whatever your actual damage.

Also called: index-based insurance, trigger-based insurance, parametric coverage

Parametric insurance pays when a defined event reaches a defined measure, rather than after an adjuster assesses your damage. For homeowners the trigger is usually an earthquake shaking at a set intensity near the property, a wind speed at a location during a hurricane, a flood depth or rainfall total. If the measurement, taken from an independent data source named in the policy, crosses the trigger, the insurer pays the agreed amount, typically within days and without a loss inspection.

Say a policy pays $20,000 if shaking at your address reaches a stated level (hypothetical). Whether the house suffers $5,000 or $50,000 of damage, the payment is $20,000, and if the shaking stays below the trigger nothing is paid even if you have damage. That mismatch is called basis risk, and it is the main limitation.

Because of basis risk, parametric coverage is usually bought in addition to, not instead of, standard homeowners, earthquake or flood insurance. A common use is to cover a high deductible or living expenses quickly. Many of these products come from insurtech and surplus lines carriers, so check how the insurer is licensed and exactly where the trigger is measured. The guide on parametric insurance for homeowners: how it works and its limits covers the products now available, and earthquake deductibles: why they're so high shows why a quick payout can matter.

Last reviewed October 10, 2026

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Related terms

Earthquake insurance Separate coverage, or an add-on endorsement, for damage from ground shaking, which standard homeowners policies exclude as earth movement. Deductible The amount of a covered property loss you pay yourself before the insurer pays the rest, shown on your declarations page as a dollar figure or a percentage. Insurtech A company that uses software, data and automation to sell, price or service insurance, as a licensed insurer or as an agency or MGA backed by carriers. Catastrophe model Software that simulates thousands of possible hurricanes, quakes, wildfires and storms to estimate the losses an insurer's policies could suffer. Hurricane deductible A separate amount you pay first, usually a percentage of the dwelling limit, that applies to wind damage from a hurricane in place of your regular flat amount.

Related guides

Catastrophe bonds and home insurance How cat bonds let investors, not just reinsurers, back hurricane and wildfire risk, who sponsors them, and what they change for homeowners and their premiums. Parametric insurance for homeowners: how it works and its limits Parametric policies pay a fixed sum when a measured trigger, like earthquake shaking at your address, is hit, whatever your damage. What exists and its limits.