Parametric Insurance Allowed in New York

Insurers writing catastrophic coverage in New York should take note of legislation signed by Gov. Kathy Hochul in December 2024 and becoming effective on Jan. 12, 2025, that allows the use of parametric insurance in the state. Assembly Bill 10344 (and companion Senate Bill 9420) from the 2023-2024 legislature establishes a new type of insurance under Section 1113 of New York Insurance Law, defined as “insurance against the occurrence of a weather-related event, such as windstorm, flood, snow, wildfire, tornado, cyclone, or earthquake, where the indemnification is based on the proximity and magnitude of the event as measured and reported by a state or federal government agency.” In other words, under this new kind of insurance, the policy benefit is not based on the actual loss incurred and proved by the insured, but rather on data measuring the severity of the event generally. The legislation also adds parametric insurance to the types of insurance that can be written on an excess-lines basis in New York (known in other states as E&S or surplus lines).

Parametric coverage has been common for decades in catastrophe bonds (or CAT bonds for short) and other insurance-linked securities (ILS), where the payout to the sponsoring ceding company is based not on actual loss but on an index measuring the severity of the triggering catastrophic event. Parametric insurance has gained traction in recent years as a primary risk-transfer product; for example, Vermont, the leading U.S. captive insurance jurisdiction, in 2022 began permitting its captives to write parametric contracts (see 8 V.S.A. § 6002(a)(10)).

The New York legislation requires an insurer that issues a parametric policy (or, where applicable, the excess-lines broker) to disclose the following information in the application for the policy and in a “prominent writing upon policy issuance and renewal”:

• The policy is not a substitute for property insurance or flood insurance, as the case may be, “which generally provide[s] more comprehensive coverage in the event of a loss.”
• A mortgagee or loss payee may not accept a parametric policy.