Traditional indemnity insurance pays out based on the cost of the loss incurred. Parametric insurance pays out when a predefined loss event occurs and the loss event exceeds a specific dollar or index amount previously agreed to in the policy. Traditional indemnity insurance pays out based on the cost of the loss incurred. Parametric insurance pays out when a predefined loss event occurs and the loss event exceeds a specific dollar or index amount previously agreed to in the policy. (Photo: Talaj/Adobe Stock)

A fact that has been hard to swallow and often debated is that insurance is not available to cover every loss. There are various reasons for this — perhaps the loss cannot be modeled with any degree of predictability to enable insurers to set an appropriate rate for coverage, or the loss is not accidental in nature and could have been prevented, or the loss would be so widespread and catastrophic that insurers could never take in enough premiums to cover all the policyholder losses, which of course can also be said of pandemics.

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