How parametric insurance works
A parametric policy pays an agreed amount when an index crosses a threshold — rainfall, wind speed, temperature, or a flight delay — instead of paying for an assessed loss.
Extreme weather events in the region, including the April 2024 UAE floods, have raised interest in this kind of cover.
What insurers need to build
The product is only as good as its data and automation.
✓Trusted data feeds for each trigger
✓A trigger engine that checks policies against live data
✓Automated payout workflows with audit trails
✓Policy admin for trigger terms and limits
✓Reporting for the regulator and reinsurers
Basis risk
Basis risk is the gap between the trigger and the customer’s real loss. Clear product design and good data reduce it; software makes it visible.
TIP
Show customers the trigger data in their portal. Transparency is what makes parametric cover trusted.
Regulation
Insurance in the UAE is supervised by the Central Bank of the UAE. Engage early on product approval for new policy structures.