Parametric is now a core concept in disaster-finance and agri-insurance debates. A parametric instrument pays out automatically when a pre-defined trigger — say, 50mm of rainfall in 24 hours or a Category 3 cyclone landfall — is breached, regardless of the actual damage suffered.
The appeal is speed: claims settle in days rather than months, since loss assessment is bypassed. The cost is basis risk: a farmer whose crop fails despite the trigger not firing receives nothing. UPSC answers on climate finance, agri-insurance reform, and the proposed sovereign CAT-bond market should distinguish parametric from indemnity instruments cleanly.
