The Securities and Exchange Commission of Pakistan (SECP) has agreed to establish the concept of “index-based insurance” or “parametric insurance,” which will settle insurance claims for losses caused by weather and catastrophic occurrences without requiring claims assessments.
The notion has been presented in the draught of the Insurance Ordinance (Amendment) Bill, 2020, to update the existing Insurance Ordinance, 2000, according to sources. SECP authorities are reviewing the new definitions and concepts in order to improve the Insurance Ordinance (Amendment) Bill, 2020.
The term “index-based insurance” or “parametric insurance” refers to a contract of insurance in which an insurer or a group of insurers promises to pay a person or a group of people based on a predetermined index or parameter and make claims payments against losses resulting from weather and catastrophic events without assessing each insurance claim.
Life insurance companies and accident and health insurance companies are excluded from index-based insurance. This will not prevent the issue of a life insurance policy or a non-life insurance policy to individuals covered under the index-based insurance scheme by leveraging the index-based insurance scheme’s information, data, arrangements, and/or infrastructure. In addition, coverage will be provided through a separate policy.
The SECP is also introducing the concept of ‘microinsurance services,’ which refers to insurance that meets a person’s or a group’s need for risk protection, savings or investments, and relief against distress, misfortune, or a contingent event for defined benefit levels subject to the maximum amounts of the sum cover and/or premium as specified by the SECP.
It also defined ‘insurable interest,’ which is a person’s stake in a life insurance policy or an insured property (or asset). When a person has a “insurable interest” in anything, the loss or damage to it will cause the person to incur financial or other types of losses. A person who purchases insurance must have an insurable interest in the topic of the policy.