Yield- & Non-Yield-Based Policies
A few questions:
1) Are yield-based policies considered parametric insurance policies?
2) Can non-yield-based parametric policies be considered indemnity contracts?
3) What can be done with non-yield-based policies to prevent over-insurance?
Comments
1) Yes it's parametric insurance, but depends on whether it is an individual or collective program. I believe an individual program would be indemnity while collective would be parametric.
2) I would say this depends on the payout. In general to determine if its parametric insurance, you need to have two factors. An occurrence trigger for the coverage. An a payout amount that does not depend on actual losses. Some non-yield based contracts would be parametric and some indemnity
3) You could do some analysis and it would be based on your risk appetite. Basis risk is a key feature of parametric insurance.