Parametric wildfire insurance could revolutionize disaster recovery

Disasters such as wildfires are becoming increasingly frequent occurrences, leaving homeowners scrambling for ways to proactively protect themselves and recover financially. Traditional insurance models have been buckling under the pressure of increased disasters. Prices have risen, and some companies have even abandoned entire states, while those that have stayed are now limiting their coverage.

With the upheaval in the insurance sector, new forms of coverage are emerging to bridge the gaps. Among the most promising is parametric wildfire insurance. Offering automatic payouts and speedy resolutions, many consumers are looking at parametric insurance as the solution the insurance industry has needed. However, as with any new product, there are risks and complexities involved that many homeowners are unaware of.

What is parametric wildfire insurance?

When the Los Angeles wildfires raged in early 2025, the world watched as homes were destroyed and people’s lives were changed in an instant. Many saw that protection was not just a “nice to have” but a necessity in areas prone to wildfires. The problem is that the traditional insurance model often leaves homeowners with gaps in coverage, and many homeowners fail to discover this until it is too late.

Although standard policies will cover documented, individual losses following a disaster after an adjuster’s inspection, this process can be exhaustive. In comparison, parametric insurance automatically pays out after a predefined event has occurred. Triggering events can include wildfires that burn a certain number of acres within a defined radius of your property, data indicating that a wildfire entered a covered zone or a declaration of a state of emergency due to a wildfire by a government entity.

Policyholders receive a predetermined, fixed sum instead of waiting for an adjuster’s determination of loss. This payout can often happen within days of the disaster event.

The parametric model disrupts the traditional insurance ecosystem

Traditional coverage has been under scrutiny in recent years following several major catastrophic events, such as the deadly wildfires in Hawaii in 2023. With many insurance companies shortchanging disaster victims or leaving states altogether, a change in the insurance ecosystem was welcomed.

The parametric model disrupts the traditional insurance system in a variety of ways. Payouts are fast, predetermined and objective, using publicly available data to trigger claims payouts.

Disasters such as wildfires, can often cause losses that cannot be easily noted on an adjuster’s checklist, including loss of income, the cost of evacuation and widespread supply chain disruptions. These losses can cause direct financial harm to individuals and are often overlooked by traditional insurance adjusters, who typically only focus on the loss of property or possessions. Parametric payouts are more flexible, and payouts can be applied to a variety of losses, not just property.

With many traditional insurance companies withdrawing from high-risk regions, the parametric model’s simplicity in underwriting and lack of costly damage assessments opens it up to alternative financing sources and reinsurance. This helps more people access protection and brings funding to disaster-ridden communities.

However, one of the most attractive aspects of the parametric model is transparency. When people suffer a loss, the last thing they want to do is try to navigate the complex insurance process. Parametric triggers are based on measurable events and are stated upfront, reducing the need for legal wrangling and confusion.

What consumers need to know

Although the parametric model may seem to be the perfect option for people living in wildfire-prone areas, there are certain aspects of parametric wildfire insurance that homeowners must keep in mind.

For example, the fixed payout that comes with this model is efficient and often comes quickly, but it rarely covers the entirety of all losses. As a result, policyholders may receive a payout that is far less than what they would need to completely rebuild their lives. If a policyholder’s losses are significant but the predetermined payout amount falls short, homeowners can be left with substantial costs to pay out of pocket.

The triggers for payouts can also be more complicated than homeowners are prepared for. With most homeowners accustomed to the traditional insurance model, they may be confused that parametric insurance payouts are determined not by personal loss but by third-party data measurements. For example, if a wildfire destroys a property, but the owner lives outside the designated disaster area, they receive nothing.

Parametric wildfire insurance is not meant to replace traditional insurance coverage, but it can serve as an effective approach to bridging the gap when waiting for a determination from a traditional adjuster. The parametric model is redefining coverage in an era of frequent disasters and upheaval in the traditional insurance industry. By educating homeowners on the pros and cons of this insurance model, they can make the best decisions for themselves and their families.

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Theodore “Ted” Patestos is co-founder and CEO of Tiger Adjusters. Contact him at [email protected].