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Parametric Insurance
Characteristics
The agricultural sector has revenue and operating costs directly impacted by unexpected changes in the weather.
In order to reduce these impacts, parametric insurance is a financial instrument that is based on indices for natural occurrences. When this rate is reached, it triggers the trigger at which the policy can be used, an example of an indicator is rainfall exceeding a certain agreed rate.
This helps managers to have greater predictability of possible losses generated by the weather factor and improves the credit rating in the market for being protected.