The recent traumatic series of California forest fires has highlighted the often awkward process of traditional commercial insurance.
As a rule, companies are required to document their losses, submit a complaint and wait for months, or even years for reimbursement. Insurance companies must meticulously assess the damage, check that a complaint has not been excluded from the police and determine the quantity to be paid. Average companies and owners of multifamilial goods can go bankrupt while waiting for reimbursement.
Some companies choose another option that promises to help them help: parametric policies. Allied market studies provide for the global parametric insurance market, which has totaled $ 18 billion in 2023, will reach more than $ 34 billion by 2033.
Parametric insurance has existed for years, covering disasters such as tropical cyclones, other events related to weather conditions and earthquakes. The main advantage of these policies is faster payment, as the insurer agrees to pay a predefined amount when a specific danger reaches a predefined scale. Payment is triggered by parameters that can be measured quickly, such as precipitation, the hurricane category or wind speed.
The insurer knows how the insurance subscriber will pay, and the subscriber includes the amount of the coverage he will get. Both are aware of the conditions necessary to enlighten the payment.
Parametric policies are expensive: a $ 1 million forest fire insurance policy may require $ 50,000 in annual payments. But the increased frequency of natural disasters
underlines the need for faster procedures. Ten years ago, forest fires were considered secondary dangers and not considered to be existential threats. Fort McMurray 2016 fire in Alberta in Canada changed this attitude in the insurance sector: the fire caused $ 3 billion in losses, which was at the time considered enormous.
Since then, the costs of forest fires in the United States have multiplied, totaling $ 67 billion in losses provided in 2024, not to mention the fires of 2025, according to the Munich Re reinsurer.