Parametric insurance pays according to a predefined trigger, such as measured rainfall or earthquake intensity, rather than solely through assessment of each customer's actual damage. It can enable relatively rapid payment when verified trigger conditions are met. The payout amount and data source are specified in advance.
For potential agricultural or catastrophe use in Nepal, the main distinction is basis risk: serious damage can occur without the trigger being met, or a payment can occur despite limited damage. Availability must be checked locally. Read the trigger, measurement location, and payout schedule before comparing it with conventional indemnity cover.