Vermont will allow state-based prisoners to cover and purchase parametric risk transfer products, which pay claims based on agreed triggers rather than physical losses.
While the H515, signed into law last week, states that “a parametric contract is not an insurance contract,” captive owners can apply for permission to “accept or transfer risk using a parametric contract.”
Parametric coverage has increased in popularity in recent years as an alternative to traditional insurance. Usually, the coverage is tied to an agreed index, such as wind speed within the specified range, and damages are triggered when the agreed data point is exceeded, often regardless of whether the policyholder has incurred a damage.
A parametric contract “is a useful tool for risk management,”; said David Provost, deputy commissioner of the Vermont Department of Financial Regulation. “There are safe harbor features that can be built into the agreement 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 competence of their captive to enter into parametric contracts. ”