Weather derivatives and parametric data

Parametric products pay out on a measured trigger rather than assessed loss, which puts the data at the centre of the contract. This guide covers weather-derivative and parametric data.

Why data is the contract

In parametric products, a payout depends on a measured index crossing a threshold, so the data source and methodology are not background detail; they are the contract. Trust in the data is everything.

The data landscape

• Indices: weather and event indices.
• Trusted measurement: authoritative, agreed sources.
• Settlement: data used to determine payouts.
• Historical: baselines for structuring.

Trusted, agreed sources

Both parties must agree on a source and methodology that is independent, reliable and auditable, often official meteorological or index data. Basis risk (gap between index and actual loss) is a key design concern.

Common use cases

Weather hedging for energy and agriculture, parametric insurance, and risk transfer.

Sourcing considerations

Provenance, independence and timeliness are paramount, and the source must be specified precisely in contracts. Historical data supports structuring and pricing.

In a managed model

A managed partner can source trusted index and settlement data with the provenance parametric products require.

The data is the contract

In parametric products a payout depends on a measured index crossing a threshold, so the source and methodology are the contract, not background detail. Both parties must agree on an independent, reliable, auditable source, and basis risk between index and actual loss is a key design concern.

Provenance and timeliness

Provenance, independence and timeliness are paramount, and the source must be specified precisely; historical data supports structuring and pricing.

Sources & further reading

• National meteorological services and ECMWF.
• Index providers and parametric-market references.
• EIOPA: parametric-insurance guidance.
• WMO: measurement standards.