As the old saying goes, hindsight is 20/20 and can even apply to the business insurance world.
In these days of the COVID-19 pandemic with business closures financially decimating companies, many business owners have been sadly surprised to learn that their business insurance coverage does not include most losses relating to COVID-19.
What’s even sadder is that there actually is a type of coverage out there called parametric insurance that could have covered such losses; however, it’s a product that has gone nearly ignored by most business owners.
Now that the unthinkable has happened, will parametric insurance coverage gain new interest?
What Is Parametric Business Insurance Coverage?
Parametric insurance coverage is a type of business interruption insurance that pays benefits in the event of a pre-defined event that causes a loss, often covers one specific type of event like a hurricane or earthquake, and can be written to covers losses resulting from a viral pandemic like COVID-19, all of which are either not covered or specifically excluded from most business interruption indemnity policies that require physical damage to have occurred to the covered premises.
Because it is not an indemnity coverage, once the triggered event has occurred and easily verified, the amount of coverage purchased is immediately paid to the policyholder without the need of an estimator to come examine the damage and relate it to the covered loss with payment typically happening in under 30 days.
Parametric policies have been available since the late 1990s with newer products emerging as recently as 2018; however, they haven’t been big sellers or even heard about very much.
What Does Parametric Business Insurance Cover?
Parametric business owners insurance policies have a different approach and are clearly defined to cover a specific event as opposed to indemnity policies that offer protection to property only if a covered loss occurs.
Parametric policies are written as a simple "if this, then that" of IFTT type of concept that doesn't require a physical loss in order to make payment - if the event happened, then the pre-determined amount is paid without any further questions.
In other words, when a triggering event happens, covered businesses receive their agreed-upon monetary benefits which can be used to keep their business viable while other more traditional indemnification coverages are processed for possible payment.
Life insurance is pretty close to parametric coverage as it pays the pre-determined amount only when the covered person dies.
The policy parameters that include the specified event and covered amount to be paid are agreed upon at the time the policy is purchased and can serve to address coverage gaps faced with indemnification policies.
Why Don’t More Companies Have Parametric Coverage Today?
Cost - and a "this-will-never-happen-to-my-business-in-my-lifetime" viewpoint.
Quite simply, throughout the time period that these policies have been available from certain insurers, most business leaders never believed there would actually be a triggering event like COVID-19 to warrant paying a high price-tag for parametric policies.
Could Parametric Insurance Have Covered COVID-19 Losses?
Yes, if a coronavirus or viral-driven pandemic was the defined event in the policy.
Currently, many business insurance agencies are now fielding calls from company owners who have just discovered these policies exist and wondering whether it’s too late to purchase one for some kind of relief for any additional losses they may encounter due to the current pandemic.
Unfortunately, since the pandemic is the triggering event for this coverage and it has already happened, no policies will offer coverage for COVID-19 related losses.
Consider A Parametric Business Insurance Coverage Policy
To fully protect a company against even certain uncommon perils, parametric insurance is a coverage to at least be considered when seeking maximum business protection.
Parametric coverage may be a little-known insurance policy not used very much; however, it only takes an event like COVID-19 to see its benefit in covering the huge gap left by indemnification policies in times of pandemics and other similar catastrophic "lifetime" events.
Of course, it's too late to purchase this type of business owners coverage for any loss related to the COVID-19 pandemic, as any coronavirus event will be excluded or not written in future policies.
Since there are many other events that could be catastrophic as well, it is not outside of reason for your business to consider the possibility of a disastrous event happening in the future and looking for ways to protect it with a parametric policy.