Key Challenges For The Region
Heavy rainfall in the region mainly drives indirect losses (waterlogging, root rot, muddy conditions blocking machinery access) rather than obvious physical destruction
Traditional indemnity policies often exclude quality downgrades and rely on slow, costly field adjustments
Dispersed, small-plot holdings make timely site visits difficult, especially when fields are waterlogged
Claims can be disputed when insurers attribute losses to pre-existing issues (e.g., fungal disease) rather than rainfall impacts
Moderate but widespread damage may not meet strict physical loss thresholds, leaving clients without payout when they need liquidity most
Key Benefits of the Parametric Structure
Transparent Terms
Pre-agreed triggers and payout levels reduce ambiguity and minimize post-event disputes.
Fast, Predictable Payouts
Satellite weather data can validate the event intensity, helping avoid delays tied to field inspections and loss adjustment.
Customized Coverage
The structure can be tailored to the client’s risk period and budget, including a deductible aligned with expected adverse weather days.
Flexible Use of Funds
Payouts provide rapid liquidity to cover indirect costs such as spoilage, operational delays, and recovery expenses.
case study example
Parametric Rainfall Cover for Excess Precipitation
A regional agricultural cooperative in Mexico manages dispersed small-plot holdings for multiple members. In this region, heavy rainfall is a critical risk, primarily causing indirect damage such as waterlogging, root rot, and muddy conditions that prevent machinery access. These losses are often difficult to insure under traditional indemnity policies.
Problem
During a previous cycle, heavy rains extended the harvest window and led to significant financial losses. Despite having traditional insurance, the cooperative faced major challenges:
- Adjusters could not access scattered, waterlogged plots in time
- The insurer disputed claims, pointing to fungal issues rather than rainfall
- Widespread but moderate damage did not meet strict physical loss thresholds
The cooperative ultimately received no payout, despite spoilage and operational delays.
Solution
To close the coverage gap, the cooperative and their broker implemented a parametric insurance policy designed to cover weather-related delays without physical field inspections.
They customized the policy by:
- Defining a specific risk period
- Setting a deductible calibrated to their initial contract budget (10 days of adverse weather)
- Using satellite weather data to measure daily cumulative rainfall and determine payouts
How It Works
When rainfall exceeds pre-agreed thresholds, a payout is triggered based on the maximum daily cumulative rainfall observed during the covered period (as measured by satellite weather data).
Index: Daily Cumulative Rainfall (in)
Annual Aggregate Limit: USD 1,000,000
If the max cumulative rainfall is just above 1 inch, the client receives a 50% payout, i.e. USD 500,000 (50% of the USD 1M annual aggregate limit).
Result
By replacing dispute-prone adjustments with objective event data, the cooperative secured rapid liquidity after heavy rains, helping cover indirect costs linked to delayed harvest, spoilage, and operational disruption.
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