Parametric coverage, once confined largely to the realm of reinsurance and insurance-linked securities, is seeping into the primary insurance market, observers say.

The index-based contracts often are used to cover exposures excluded in conventional policies or to cover primary deductibles and they offer the benefit of a quick, simple claims payment process, they say.

Parametric triggers have for several years been included in various reinsurance contracts, such as industry loss warranties or ILS products. The coverage is based on data and the achieving or exceeding some agreed-upon measurement, such as wind speed or rainfall.

Although, the coverage may require some proof of property damage, claims are paid once the agreed upon trigger has been reached and paid without the need for extensive proof of loss.

“Parametric products are migrating into the retail side,” said Gary Marchitello, New York-based head of property broking for Willis Towers Watson P.L.C. “We as a company have probably done a dozen or so placements of that type in the past year or two.”

“The popularity has taken off rather dramatically,” said Robert Nusslein, New York-based head of innovative risk solutions, Americas, at Swiss Re Corporate Solutions Ltd. “There are a lot of corporates not only interested in the cover but closing different transactions with us.”

Ten years ago, parametric insurance was rare but Swiss Re Corporate Solutions closed more than two dozen parametric natural catastrophe contracts globally in 2017, with the vast majority covering policyholders in North America, he said.

Parametric coverage offers several advantages and can be used to complement traditional property coverage, experts say.

“The goal of parametric insurance is to offer risk transfer for exposures for which it is historically difficult-to-impossible to obtain risk transfer,” said Evan Glassman, CEO of Fort Lauderdale, Florida-based New Paradigm Underwriters L.L.C., “difficult exposures such as losses below traditional insurance deductibles; losses excluded within the policy; or exposures historically not insurable, such as transmission and distribution power lines, landscaping or beach erosion.”

“Where these parametrics have become useful has typically been on the very high end, such as clients having very large and complicated time element losses, or on the low end, where clients may be seeking to cover primary deductibles or excluded property,” said Duncan Ellis, U.S. property practice leader for Marsh L.L.C. in New York. “Parametrics provide supplemental-type coverage to the all-risk property coverage without the traditional requirement for the rigorous degree of proving loss.”

Excluded risks that can be covered via a parametric policy might include trees, shrubs or golf courses, Mr. Ellis said.

The coverage often addresses catastrophe perils such as windstorms and earthquake.

“They tend to be mainly hurricane- or named storm-driven products where the trigger is wind speed,” Mr. Marchitello said.

Excess rainfall, storm surge and excess snowfall can also be covered, said Mr. Nusslein of Swiss Re.

“Eighty-eight percent of businesses are directly affected by the weather,” said Kurt Cripps, London-based managing director of Aon P.L.C.’s innovation and solutions team, citing a figure from the Weather Risk Management Association in Washington. “For many businesses, it’s the largest unknown variable, so clients ask us how they can mitigate that risk.”

“Almost every industry — construction, energy, agriculture, aviation, retail, mining — they all have different weather exposures,” said Karsten Berlage, New York-based managing director for Allianz Global Corporate & Specialty S.E.’s alternative risk transfer unit. If one component in a supply chain is affected by weather, for example, manufacturing processes can be delayed.

Claims can often be settled much more easily and quickly with parametric coverage because it is index-based, experts say.

“The real attractive part of these is that you don’t have to get involved in a long, protracted claims adjudication process,” Mr. Ellis said. “Simply exceed the index, have some element of property damage, and you can get paid.”

“Payment is made 30 days from the event and, for parametric insurance, usually 12 to 24 months later there is a simple certification of losses by the insured,” Mr. Nusslein said.

Some parametric policies offer even shorter timeframes.

“Once a policy is in place and there is a claim, payment is scheduled for 14 days afterward,” Mr. Cripps said. “There is no loss adjusting here. There is no claims haggling.”