Parametric insurance, a type of coverage that pays out based on a pre-agreed trigger event rather than traditional loss assessment, is increasingly being explored by retailers to manage financial risks. This innovative approach is seen as a valuable tool for retailers, particularly small and medium-sized enterprises (SMEs), which often face challenges in securing affordable and comprehensive coverage against specific perils.
Under a parametric policy, payouts are triggered by objective data, such as rainfall levels, earthquake intensity, or wind speed, eliminating the need for lengthy claims adjustments. This feature allows for swift compensation, enabling businesses to recover quickly from disruptions and avoid potentially devastating financial losses.
The growing adoption of parametric insurance is driven by several factors, including the increasing frequency and severity of extreme weather events, the need for more efficient claims processing, and the desire for greater transparency and certainty in coverage. As awareness of this type of insurance grows, it is expected that more retailers will consider incorporating it into their risk management strategies.