The Regulatory Environment for Parametric Insurance

Parametric insurance proposals have emerged as potential solutions for managing a growing list of cutting-edge risks including pandemic, climate change, and even urban crime. For example, Chubb has proposed a $750 billion Pandemic Business Interruption Program through which insurance companies would sell parametric pandemic insurance contracts to small businesses. Similarly, the major property and casualty insurance trade associations have jointly proposed the Business Continuity Protection Program which would employ a “[s]traightforward, objective parametric trigger”.

These proposals each leap to the conclusion that parametric insurance is … insurance. In fact, parametric insurance is a “swap” within the regulatory jurisdiction of the Commodities Futures Trading Commission (CFTC).

This paper examines the broad net Congress cast to capture event contracts under the CFTC’s jurisdiction and the exclusion the CFTC crafted allowing traditional indemnity-based insurance to remain within the jurisdiction of state insurance regulation.

A PDF of this paper is available here —> paper.