Clear DefinitionsParametric Insurance
1 min read
Pronunciation
[puh-ram-eh-trik in-shoor-ance]
Analogy
Like a weather insurance that pays you automatically if rainfall exceeds a set threshold, without filing a claim or damage assessment.
Definition
An insurance model where payouts are triggered automatically by predefined parameters (e.g., weather data, flight delay) rather than assessed losses, often using oracles to verify the trigger event.
Key Points Intro
Parametric insurance uses objective data triggers to automate payouts.
Key Points
Predefined triggers: Payout conditions based on measurable parameters.
Oracle verification: Uses trusted data feeds to confirm events.
Fast settlement: Automatic payout without claims adjustment.
Transparency: Clear rules reduce disputes.
Example
A crop insurer pays farmers in stablecoin if satellite rainfall data shows less than 50 mm of rain during the planting season.
Technical Deep Dive
Smart contract holds premium in escrow, subscribes to weather oracle feed. When oracle reports cumulative rainfall threshold at GPS coordinates, contract triggers `payout()` to policyholder address.
Security Warning
Oracle failures or manipulation can trigger false payouts or withhold rightful claims; use redundant data sources.
Caveat
Basis risk arises if parameter does not align perfectly with actual loss experienced.
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