Paid on the measurement, not the damage estimate.
A parametric policy pays a pre-agreed amount when a measured event crosses a threshold, like an earthquake's magnitude or a flood's depth. I explain where that fits next to a home or business policy, and where it doesn't.
Quick answer Parametric insurance is insurance that pays a pre-agreed amount based on the magnitude of a measured event, such as an earthquake or flood, rather than on an adjuster's estimate of your damage.
- A parametric contract names the amount it pays, the trigger, and an independent party, usually a government agency, that confirms whether the trigger was met.
- Because no one has to adjust the loss, the NAIC and the Congressional Research Service say parametric payment can come in a matter of weeks.
- Basis risk means a parametric payment can be more or less than your loss, or nothing if the trigger isn't reached.
- Alishahi Insurance treats parametric coverage as a supplement, such as cash toward a large earthquake deductible, and never as a replacement for a policy that pays your actual loss.
- In the United States, most parametric policies are bought by public sector organizations such as states, cities and utilities, according to the Congressional Research Service.
By Sam Alishahi · CA Insurance License #4348151 · Reviewed October 2026 · How this page is researched
A trigger, an amount and a referee
A parametric contract names three things: the amount it pays, the trigger, and an independent party that confirms whether the trigger was met, usually a government agency. The NAIC's example is a policy that pays $100,000 if an earthquake of magnitude 5.0 or greater occurs. Nobody adjusts your damage, so the money can arrive in weeks instead of the months a regular claim can take.
The trade-off is basis risk: the payment isn't tied to what you actually lost. You can take real damage and receive nothing because the reading fell short of the trigger, or receive the full amount for light damage. So I treat parametric coverage as a supplement, such as cash toward a large earthquake deductible or living costs while a claim is settled, and never as a replacement for a policy that pays your actual loss.
- TriggerA measurement set in advance, such as earthquake magnitude, a hurricane's wind speed, satellite weather readings or water depth.
- VerificationA named third party, often a government agency, confirms the reading, with backup sources if it can't.
- PaymentA fixed amount written into the contract, paid without a claims adjustment.
- Basis riskThe payment can be more or less than your loss, or nothing if the trigger isn't reached.
What underwriters will ask
Having these ready means I can go to market on the first call. The quote form asks for the same things, and anything you don’t know yet can wait.
- The event: earthquake, hurricane wind, flood or another peril you want cash for.
- Location: the exact address, since triggers are measured at or near a place.
- Current coverage: home, earthquake, flood or commercial property declarations.
- Deductibles: what you'd owe on your existing policies after a major event.
- Amount: the cash you'd want in the first weeks afterward.
- Use: your home, a rental property or a business.
Parametric insurance, answered
What is parametric insurance?
Insurance that pays a pre-agreed amount based on the magnitude of an event rather than on an adjuster's estimate of your damage. The contract states the amount, the trigger and who verifies the trigger.
How fast does a parametric policy pay?
Because no one has to adjust the loss, the NAIC and the Congressional Research Service both say payment can come in a matter of weeks. A standard indemnity claim can take months or years.
What is basis risk?
The gap between what the policy pays and what you lost. The Congressional Research Service describes New Orleans schools that received nothing after Hurricane Francine because its winds fell short of the policy's 100 mph trigger.
Can parametric insurance replace my homeowners or flood policy?
I don't recommend it. The payment isn't linked to your actual loss, so it can fall well short of a rebuild. The NAIC describes parametric coverage working alongside indemnity policies, for example by paying an amount equal to a deductible.
Is parametric insurance regulated?
Parametric insurers face the same solvency and market conduct oversight as other insurers, but few jurisdictions have rules written for parametric products. The Congressional Research Service notes they may not be fully regulated under laws built for indemnity insurance, and some states are considering legislation.
Who buys parametric coverage today?
In the United States, most parametric policies are bought by public sector organizations such as states, cities and utilities, according to the Congressional Research Service. Products for homeowners and businesses exist too, including small earthquake policies and hurricane and flood products.
Has California tried it?
Yes. In October 2024 the California Department of Insurance announced a two-year, $200,000 community flood pilot for the Delta city of Isleton that pays when floodwaters reach a pre-determined depth. It's designed to add to residents' NFIP flood coverage, not replace it.
Do you offer parametric insurance outside California?
Yes. Clients across the country send the same quote form. California policies are placed directly; outside California the request is handled together with a partner agency in your state, and the shopping across carriers works the same way. Rules, minimums and markets differ by state — see insurance requirements by state.
Tell me what the cash needs to cover.
The address, the event you're worried about and your current declarations pages are enough to start.
Alishahi Insurance · Saman Alishahi, independent insurance broker, California License #4348151. General information, not a quote or a promise of coverage; coverage depends on underwriting and the terms, conditions and exclusions of the policy actually issued.
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