Know Your Policy: Parametric vs. Traditional Flood Insurance

KNOW YOUR POLICY Parametric vs. Traditional Flood Insurance Flood events have surged over the past decade, putting many Residential and Commercial properties, including those outside of traditional flood zones, at risk. Parametric Flood Insurance provides data-driven, trigger-based financial protection for certain exposures, while Traditional Flood Insurance remains a foundational coverage for many property owners. Each product serves a distinct role and can be used independently or together to support a more comprehensive flood risk strategy.

Traditional Flood Insurance, including Primary & Excess solutions available within the Excess & Surplus (E&S) space, is designed to cover physical damage to structures and contents, satisfying lender requirements and providing repair or replacement cost coverage after a covered flood event. Burns & Wilcox places Traditional Flood Insurance through private market carriers, offering policies that provide broader coverage and higher limits than those typically available through the National Flood Insurance Program (NFIP).

Parametric Flood Insurance offers a trigger-based payout that can supplement traditional policies by addressing coverage gaps, high deductibles, or indirect impacts such as access issues, loss of income, or business interruption where physical damage thresholds are not met or where traditional coverage may not respond.

The chart below provides a high-level, at-a-glance comparison of Parametric and Traditional Flood Insurance policies. It is intended as a conversation starter and resource to help guide discussions with clients about coverage options. It is not comprehensive and should not replace a full policy review or professional advice.

Feature

Parametric Flood Insurance

Traditional Flood Insurance

Trigger for Payout

Based on a predetermined, location-specific measurable parameter, such as satelliteobserved water inundation within a defined geographic boundary, or an IoT sensor triggered by water depth.

Based on physical damage after language assessment, adjustment, and approval by the carrier.

Payout Timing

Payment is typically issued within days after the trigger is verified, as no physical inspection is required.

Payment is typically issued within weeks to months after the claim is reviewed and approved, which may involve inspections and documentation.

Feature

Parametric Flood Insurance

Traditional Flood Insurance

Use of Funds

Funds may be used for a range of recovery needs, as determined by the policyholder.

Funds are applied to documented repair or replacement costs for covered losses.

Claim Process

No traditional claim is required; payout is automatic if the trigger is met and verified in accordance with policy terms.

Requires a standard claims process, including proof of loss and adjuster review.

Exposures Addressed

Can be used to address exposures not typically covered by traditional policies, such as indirect loss and non-building exposures by providing liquidity to help offset access issues, loss of income, or business interruption.

Typically covers direct building damage and contents replacement within policy limits, subject to terms and conditions. Risk Limits are reserved for specific categories.

Limits

May offer higher or more flexible limits than traditional Flood policies, depending on underwriting, pricing, trigger structure, and risk profile, and are not tied to replacement-cost valuation.

Limits are based on the estimated cost to repair or replace damaged property and options can be limited or greatly affected by property values vs risk limits.

Ideal For

Properties with unique exposures or nontraditional risks, such as docks, piers, bridges, open car lots, golf courses, and properties located in high-risk flood zones, including those with recent flood history or elevation challenges.

Standard residential and commercial buildings seeking primary flood protection and lendercompliant coverage.

Availability

Offered by select Excess & Surplus carriers and partners.

Offered through the NFIP and private carriers, subject to underwriting guidelines.

Lending Requirements

Not intended as a substitute for primary Flood Insurance required by lenders; can supplement existing coverage.

Satisfies lender requirements when written through the NFIP or private markets.

For additional insights on Parametric and Traditional Flood Insurance, visit burnsandwilcox.com/specialties/flood

This commentary is intended to provide a general overview of the issues contained herein and is not intended, nor should it be construed, to provide legal or regulatory advice or guidance. If you have questions or issues of a specific nature, you should consult with your own risk, legal, and compliance teams.