Parametric Insurance: Protecting Against Weather-Related Delays

As weather events become more extreme, the odds of missing a construction deadline are increasing. A potential solution for the financial repercussions of weather-related delays is parametric insurance.

Delays caused by weather events can mean financial penalties for you, not to mention potential labor cost increases, rush delivery charges and costly product substitutions.

We’ve seen clients pay large penalties for projects that were delayed due to weather – especially projects involving schools or student housing, where the occupancy date is non-negotiable.

What if you could buy insurance to help offset such penalties and the potential extra costs? Now you can. It’s called parametric insurance. Put simply, it’s insurance based on the probability of a pre-defined event.

Parametric insurance uses a metric – say precipitation amounts or temperatures. If the metric is reached, you get paid. No need to prove how the weather event affected your delivery date or caused physical damage. No fighting over claims!

Here’s an example:

You’re building a new elementary school that must be finished before the next school year begins. A critical phase of the project, completing the building envelope, will take place during the winter. If the region experiences abnormally low temperatures during this phase of the project, you will have significantly more “weather days” than anticipated.

In this situation, you can set the metric to trigger coverage if the temperature hits a certain low for an amount of time that exceeds what is typically expected in that area. If that metric is hit, you receive a payout – even if you experience no physical damage to the project. Once the critical phase of the project is over (the building envelope is completed and interior work is taking place), you no longer need the coverage.

The location of the project, type of project and time of year are factors in considering whether parametric insurance is right for you.

As the frequency of weather abnormalities increases, parametric insurance has become more widely available. In fact, the whole category of insurance is evolving and has some promising potential applications for both weather- and non-weather-related metrics.

If you have an idea for a parametric coverage that could work for you, we’d love to talk it over.