Policy Review: Digit Parametric Insurance Policy
Document reviewed: Digit Parametric Insurance Policy wording (Indian market form, structurally representative of parametric wordings generally). Published at godigit.com.
This review covers the payout mechanics, what constitutes a covered loss, and the exclusions and limitations the policy itself identifies.
1. The single most important structural point
This wording is a shell. Every number that decides whether and how much gets paid lives in the Policy Schedule / Term Sheet, which carriers do not publish:
The Strike and Exit levels
The Notional Payment per unit of deviation
The payment formula itself
Sum Insured and Deductible
The named Authorized Data Provider and its backup
The geographic location at which the index is measured
The Index Risk Period / Index Phase Period dates
The operative language is explicit about this:
“the Insurer shall calculate the loss as per the payment formula as stated in the Policy Schedule or Term Sheet on the basis of parameter data.”
The base form tells you nothing about the economics. A review of a parametric placement that does not include the Term Sheet is not a review.
2. What is a covered loss
There is no loss in the traditional sense. The trigger is an index deviation, not damage:
“The Company hereby agrees, subject to the terms, conditions and Exclusions herein contained … to make such payment as stated in the Policy Schedule to the Insured, in the event of occurrence of Strike or Exit resulting from deviation of Observed Index within the Policy Period / Index Risk Period / Index Phase Period.”
“In the specific geographical location and during the Policy Period as specified in the Policy Schedule, the Observed Index is greater or lower than the Strike, the benefit will be payable to the Insured, subject to a maximum of the Sum Insured.”
Covered indices
Rainfall (deficit, excess, unseasonal, dry spells, rainy days, dry days), temperature (high/low), relative humidity, wind speed, solar radiation or sunshine, fog, hailstorm and snow — and combinations of these.
The definitions that carry the weight
Strike — "the Observed Index level at which the Insured becomes eligible for claim payment."
Exit — "the Observed Index level at which the Insured becomes eligible for full Sum Insured under the Policy Period / Index Risk Period / Index Phase Period."
Observed Index — the measured value of the covered parameter, used to determine whether Strike or Exit is met.
Notional Payment — "the agreed amount, which shall be paid as compensation to the Insured for per unit deviation in Index."
Sum Insured — the maximum payable for each and every claim, and in the aggregate.
Consequence: no physical damage requirement, no proof of loss, no adjustment of damages. And the reverse — actual damage with no index deviation pays nothing.
3. Claim payout terms
Trigger - Observed Index crosses the Strike, in the scheduled location, during the scheduled period.
Amount - Notional Payment × units of deviation, per the formula in the Term Sheet. Full Sum Insured once the Exit level is reached.
Cap - Sum Insured — "the maximum amount that the Company will pay for each and every claim, and in all, under this Policy."
Deductible - Liability attaches in excess of the Deductible stated in the Schedule.
Data - Certified data from the named Authorized Data Provider only.
Timing - Payment "not earlier than the expiry of the Index Risk Period / Index Phase Period."
Notice of loss - None required from the insured — the carrier pulls the data itself.
Payment - Direct to the insured and/or the scheduled financial institution per the Bank Clause.
Data-source exclusivity — the provision that matters most
“Data collected from the Authorized Data Provider shall be the only basis of determining the payments to be made under this Policy and data recorded by institutions or departments other than the Authorized Data Provider as mentioned in Policy Schedule shall have no bearing on the payments to be made and cannot be hold good for any future disputes.”
The trigger cannot be contested with an independent gauge, a NOAA record, or an engineer’s data. Whatever station the schedule names is the entire universe of proof.
Missing-data fallback
Reference provider → backup/alternate provider → fallback methodology. The fallback substitutes the average of corresponding dates from an agreed number of recent historical years, drawing all replacement points from the same historical year(s), and pays the average of the amounts each substituted year would have produced.
No notice of non-payment
“In event when there is no deviation in the Index parameters as per the Policy terms and conditions, there will not be any claim payable under the policy. The Company shall not be liable to provide any written communication to the Insured.”
Silence is the denial. No denial letter, nothing to trigger appraisal, no clock starts running.
4. Exclusions (Section D)
Nuclear hazards — ionizing radiation or contamination from nuclear waste or fuel; radioactive, toxic, explosive or other hazardous properties of any nuclear assembly or component.
Non-weather causes — any diminished agricultural or non-agricultural output or yield, or increased operational costs, however caused, other than deviation in the scheduled weather parameter.
Riot, strike, malicious damage, terrorism — unless specifically scheduled.
War and conflict — war and war-like operations, invasion, hostilities declared or not, civil war, rebellion, revolution, insurrection, civil commotion, military or usurped power, loot or pillage, seizure, capture, confiscation, arrest, restraint and detainment. The insured carries the burden of proving the loss is unrelated.
Consequential loss — "loss of profit, business interruption, market loss or otherwise and/or any other legal liability of any kind," unless specifically scheduled.
Act-of-God perils — storm, cyclone, tempest, typhoon, hurricane, tornado, flood, inundation, earthquake, tsunami, hailstorm and similar, unless specifically scheduled.
Pandemic or contagious disease — any outbreak of a pandemic or infectious or human contagious disease.
Agricultural conditions — no cover where the land is not cultivated during the policy period; no cover for harvested crops or crops in transit.
Direction mismatch — no payment where the insured bought cover for an index exceeding the Strike and the index came in lower, or bought cover below the Strike and the index came in higher.
Wrong parameter — no cover for loss tied to any weather index or parameter other than the one scheduled.
Note the shape of exclusions 5 and 6. The base form is a weather-index form. Business interruption and named-storm / catastrophe perils — the two things parametric is most often pitched for — are excluded unless bought back on the schedule. Confirm they were.
5. Limitations and conditions worth flagging
Contribution (F.13) — "the Company shall not be liable to pay or contribute more than its rateable proportion of any loss or damage." A rateable-proportion clause in a product sold as supplemental, first-dollar money is a real conflict. If the parametric and the property policy are argued to cover the same subject matter, the carrier has written support to cut the payout. Negotiate it out, or get excess / non-contributory language into the schedule.
Insurable interest (F.3) — the insured must hold legal ownership rights and produce title deeds on demand. Expressly a condition precedent to settlement.
Incontestability and disclosure (F.1) — the policy is "null and void" for untrue or incorrect statements, misrepresentation, mis-description or non-disclosure of any material particular. With no adjustment process, rescission and trigger-not-met are the carrier’s only real defenses — expect heavy underwriting-file scrutiny on a large claim.
Limitation period (F.2) — no liability after 12 months from the date the claim is made if the insured fails to produce requested documents, unless the claim is in suit or arbitration.
Right to inspect (F.12, E.10) — the carrier may enter the insured area, appoint a surveyor or loss assessor, and demand books of account, receipts and documents. A product that pays without regard to damage still reserves full inspection and financial-records rights.
Material change in risk (F.6) — immediate written notice required; the carrier may adjust scope of cover and/or premium.
Records (F.7) — accurate records open to inspection, and information furnished within one month after expiry.
Fraud (F.14) — all benefits forfeited for any fraudulent claim, false statement or fraudulent device.
Cancellation (F.15) — carrier on 15 days’ notice with full refund of premium for risks not yet commenced; insured on 15 days’ notice with a 75% refund of premium for risks not yet commenced.
Schedule overrides the form (F.11) — where the two are irreconcilable, the Policy Schedule governs. Reinforces the point in Section 1.
Disputes — Indian law and Indian courts; arbitration only if the parties enter a separate arbitration agreement. On a US placement, this is where to check for a foreign choice-of-law or service-of-suit provision on surplus-lines or Lloyd’s paper.
6. Checklist for reviewing any parametric placement
Get the Term Sheet — strike, exit, notional payment, formula, deductible, sum insured.
Identify the named data station and how far it sits from the insured location. That distance is the basis risk.
Check the backup data provider and the fallback methodology.
Confirm which perils were actually bought back on the schedule — business interruption, named storm, earthquake.
Kill or narrow the contribution clause; get excess / non-contributory confirmation in writing.
Confirm the Index Risk Period dates line up with the actual exposure season.
Model the payout against a historical event at that location and see what it would in fact have paid.
A note on basis risk
Payment is untethered from actual loss, so it can overpay or pay nothing on a real loss. The documented example: the New Orleans school district’s parametric wind policy did not respond to Hurricane Francine damage because measured winds came in under the 100 mph trigger. Sold correctly, parametric is a supplement to indemnity coverage — a deductible buy-down, a cash-flow bridge, or cover for a non-damage exposure the property policy excludes. It is never a replacement.