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Vermont allows captives to issue parametric coverage

captive insurance parametric

Vermont will allow captives domiciled in the state to cover and buy parametric risk transfer products, which pay claims based on agreed triggers rather than incurred physical losses. 

While H515, which was signed into law last week, states “a parametric contract is not an insurance contract,” captive owners can apply for permission to “accept or transfer risk by means of a parametric contract.”  

Parametric coverage has grown in popularity over the past several years as an alternative to traditional insurance. Typically, the coverage is tied to an agreed index, such as wind speed in specified area, and claims are triggered when the agreed data point is surpassed, often regardless of whether the policyholder has incurred a loss. 

A parametric contract “is a useful risk management tool,” said David Provost, deputy commissioner in the Vermont Department of Financial Regulation. “There are safe harbor features that can be built into the contract to qualify it as insurance. Organizations often use captives as a central repository for all types of risk management tools, not just insurance, so it will be helpful for companies to have explicit authority for their captive to enter into parametric contracts.”