Fast Payouts, No Paperwork: Why Parametric Insurance Is Gaining Traction With Travelers

Most travelers are familiar with the different types of insurance plans available for intrepid explorers and casual vacationers, with policies available for backpackers, digital nomads, cruisers, and even adventure travel insurance policies for riskier activities. These comprehensive, customizable policies typically cover emergency medical care and evacuation, trip cancellation, baggage loss, and gear. For travelers headed to destinations prone to natural disasters and extreme weather conditions, or those seeking fuss-free payouts in the case of an airline losing checked luggage, parametric travel insurance is a relatively new venture, emerging as an add-on or complementary service.

This non-traditional form of compensation has historically been the domain of farmers and other rural businesses, covering such incidents as drought, flood, storms, and frost. In the case of a dry spell, an insured landowner would receive a set amount of reimbursement when precipitation falls below a certain level. In the wake of climatic shifts, an increase in travel delays, and – to an extent – the pandemic, parametric insurance is starting to crop up in the travel industry.

Matador Network has partnered with World Nomads to bring you the best info and rates on travel insurance policies. We may receive a commission from links on this page

What is parametric insurance?

Parametric insurance is a type of insurance that pays out automatically based on a predetermined trigger event. The policy exists within a measurable index of set parameters — such as a hurricane’s wind speed, earthquake magnitude, or rainfall below a certain level. Hence why it has traditionally been marketed towards agriculturists and businesses who are most likely to be impacted by such events. Payouts are a set amount that are not connected to the actual damage or loss suffered by the policyholder. For example, if the rainfall in a particular region falls below 100mm during the growing season, the insured farmer would receive an automatic lump sum payout – regardless of whether they suffered a profit loss.

In terms of travel, parametric insurance can come into play in the case of natural disasters (earthquakes, hurricanes, and wildfires), unprecedented weather conditions, and flight delay or cancellation. If a flight is delayed by a specified length of time, you will receive an automated payout or instant benefit. In a nutshell, parametric insurance pays based on “if X happens, then you receive Y.”

When purchasing flights and accommodation through certain platforms, you may be invited to purchase such add-ons as a “weather guarantee” or “flight delay benefit” during the booking process. These are examples of embedded parametric insurance where a travel company partners with an insurance provider.

Benefits and limitations of parametric insurance for travelers

Parametric insurance carries such perks as faster payouts and minimal, if any, paperwork. As this is an automatic means of coverage, travelers are rarely required to submit documentation. Instead, the insurer receives data directly from official sources, like flight tracking systems and weather stations. These policies are transparent, as the “trigger” is objective and measurable. Due to the automation, payouts are faster, or benefits are instant; lost or delayed baggage may be compensated as quickly as 24 hours, or lounge access would be provided immediately. Bear in mind that any compensation is determined by the provider — if you spend more than the payout, you can’t claim extra.

Parametric insurance for travelers is an add-on service that goes alongside a comprehensive policy. Those who may benefit from a parametric insurance product include travelers visiting destinations prone to earthquakes, volcanic eruptions, and wildfires (these events can ground flights and derail outdoor activities) as well as frequent fliers, digital nomads, and travelers with multiple connections.

Because these policies aren’t always offered by travel insurance providers, a great route to take is to buy a travel insurance policy from World Nomads and a smaller parametric policy from one of the companies noted below.

Browse World Nomads Policies

Parametric insurance companies and providers

Parametric insurance is an emerging trend in the travel industry, with policies available for consumers and businesses. A handful of providers have started incorporating parametric services as a complementary extra, while start-ups offer add-on products that may be purchased alongside a traditional travel insurance policy.

• World Nomads: The reigning champion of backpackers, adventure travelers, and digital nomads, World Nomads has launched a parametric service for its United Kingdom customers. In the case of a flight delay of 90 minutes or more, SmartDelay permits admission to over 1,500 airport lounges worldwide. Policyholders must register their flight with SmartDelay ahead of travel to receive this instant benefit. This service isn’t yet available to United States passport holders.
• Sensible Weather: This startup offers parametric coverage for bad weather (heavy snowfall, rain, and extreme heat), which can impact travel plans. This is only applicable when booking accommodation, outdoor experiences, or theme parks via Sensible Weather’s partners – Outdoorsy, Roamly, KOA, and Tui are among their 4,000-plus global and US-based partners. The terms are defined at the time of purchase and payouts are automated as per Sensible Weather’s monitoring software – there’s no need to submit any documentation.
• Blink Parametric: This is an InsurTech company offering parametric travel insurance products for flight disruption and delayed or lost luggage. Benefits include lounge passes, hotel lodgings, and expedited cash payouts for missing baggage. Blink’s parametric services were introduced in the United States in partnership with Travel Insured International (TII) and are only eligible in conjunction with certain insurance providers. Customers are required to pre-register their flight information to activate the policy and automated payouts.

When to purchase parametric insurance for your trip

Parametric insurance isn’t essential for travelers but it can be a smart add-on for specific scenarios on a case-by-case basis. The main perks are automated, speedy payouts and not having to lose time submitting claims.

If losing your luggage would cause elevated inconvenience and you would prefer to be compensated quickly and without filing a claim, consider purchasing parametric insurance through a provider such as Blink. Blink’s disruption packages are also beneficial for trips with multiple connections or for digital nomads with complex or flexible travel plans. If your trip is dependent on good weather (such as beach vacations and amusement parks) or is focused on outdoor pursuits (such as camping, golfing, climbing, biking, and hiking), Sensible Weather’s parametric insurance means you would get compensated for lost time to rain, heavy snowfall, or unseasonably high heat.

Parametric insurance alone isn’t adequate coverage for a trip. You’ll always need to purchase a comprehensive plan through a provider such as World Nomads.

Browse World Nomads Policies