Peru’s insurance authority proposes a regulation on parametric insurance
Peru’s Superintendency of Banking, Insurance, and Pension Fund Administrators (SBS) has released for public comment a draft regulation that would approve the Parametric Insurance Regulation and amend provisions on the marketing of insurance products and internal audits.
The regulation would establish a category of insurance in which remuneration does not depend on the direct assessment of loss. Instead, it would depend on the verification of an insured event, quantified by an objective parameter that meets or surpasses a predefined threshold specified within the policy. Under this method, coverage would be activated based on verifiable data rather than through conventional loss adjustment.
Below, we discuss the proposed regulation, its background, and practical implications for interested parties.
What is parametric insurance?
Parametric insurance is not simply a new type of policy: its design brings together insurance regulation, data, technical modeling, market conduct, reserves, reinsurance, and natural catastrophe risk management. The proposal is part of a regional trend toward creating financial-protection mechanisms against environmental and catastrophic risks. Organizations such as the Inter-American Development Bank and Inter-American Center of Tax Administrations have highlighted its potential for environmental-risk adaptation, while cautioning about limitations such as basis risk, design costs, and product comprehension. In Peru, the insurance industry association holds that parametric insurance could strengthen resilience and complement traditional coverages.
What is the SBS proposing?
The draft defines parametric insurance as coverage that pays a predetermined amount when an event exceeds a threshold measured by a parameter set in the policy, without the need for a loss assessment. The regime is limited to risks from natural perils and excludes index-based coverages or those requiring calculation or modeling (such as agricultural yield-index products, which are governed by their own rules). It calls for clear rules on the insured event and insurable interest, the parameter and the threshold, the geographic area, the data sources and verifiers, the payment structure, the technical note, basis risk, marketing, reserves, reinsurance, and regulatory reporting. Rather than a policy with a different payment mechanism, it would amount to a product driven heavily by data, traceability, technical modeling, and transparency toward the insured.
In this type of policy, data is a central feature of the insurance architecture. The parameter must be objective, independent, standardized, verifiable, timely, and correlated with the impact of the event. The information must come from data provider agencies, with secondary sources used only where the primary source is not available on a technical and verifiable basis, which would only come into play in the event of failures, delays, discrepancies, or third-party intervention.
Basis risk – the potential gap between the actual loss and the contemplated payment – is another sensitive point. The insured may suffer a loss without the parameter reaching the threshold or may collect despite a low or nonexistent loss. Inherent to the product, basis risk must be clearly explained in the policy, the technical note, and the product guide, and reinforced in the training of the sales team, so that the policyholder or beneficiary understands that the insurance pays only when the parameter is triggered.
On the prudential side, companies will have to provide technical support for the product design with statistical data, justification of the data sources, spatial and temporal resolution, historical records, simulations, and analysis of the correlation between the parameter and actual losses.
As to reserves, the draft provides for reserves for risks in force and, where applicable, deferred premium reserves equal to 100 percent of the retained premium until the risk is extinguished, in addition to claims reserves and catastrophe risk reserves.
On reinsurance, the proposal provides that the contracts must contemplate the same coverage terms as the parametric policy. Otherwise, they would not be recognized as risk-transfer instruments for regulatory purposes. This point may be particularly relevant for international reinsurance structures, where it will be necessary to review the consistency among the wording, the trigger, the parameter, the threshold, the geographic area, and the payment structure.
Marketing will also be impacted. Parametric insurance may be sold directly by the insurer, through distributors only under the bancassurance model, and through brokers using personnel trained to explain the product. It may not be designed as a hybrid product or combined with traditional insurance; remote channels will have to provide information on the insured event, the coverage area, the parameter, the data sources, the activation threshold, and illustrative examples. Although the product is operationally more agile, communicating it is more complex. If the marketing materials, scripts, guides, and disclaimers do not clearly explain the coverage and its limits, the risk of claims, disputes, and market-conduct challenges increases.
Practical implications for the market
The proposal sets requirements for design, data, documentation, market conduct, reserves, reinsurance, and regulatory reporting. Insurers will have to verify the consistency among event, parameter, threshold, area, payments, and data, and provide technical support for their choices through simulations. Reinsurers will have to align their contracts to ensure terms equivalent to those of the policy. Channels and brokers will have to explain transparently that payment is triggered when the parameter is met, rather than by the occurrence of actual loss. And companies exposed to natural perils will be able to use these products as liquidity or continuity mechanisms, provided the design reflects the exposure they seek to manage.
Relevant sectors
Although the draft does not specify which industries might use these products, parametric coverages are relevant to sectors exposed to physical, environmental, or operational-continuity risks, such as infrastructure, energy, mining, agriculture, fishing, logistics, retail, real estate, hospitality, banking, telecommunications, healthcare, education, the public sector, and governments. These insurance solutions can help manage liquidity, operational continuity, environmental risks, territorial exposure, or catastrophic events. Their adoption, however, will be subject to regulation, data availability, technical feasibility, and product comprehension.
Points to review during the public consultation
During the comment period, interested parties may wish to focus on several key areas. As to the product, it may be useful to assess whether the definition adequately delimits what qualifies as parametric insurance and whether the reference to natural perils sufficiently covers the environmental, geological, and catastrophic events relevant to Peru; and, on the data side, whether the rules on objectivity, independence, availability, and traceability are workable across different areas and types of event.
On the market and prudential front, it may be worth reviewing whether the disclosure obligations regarding basis risk should be reinforced with standard formats or examples; whether the marketing regime fits bancassurance, digital channels, and mass-market products; whether the requirement of “the same coverage terms” in reinsurance needs greater precision; and whether the reserving methodology, the guidance for reporting and audit, and the transition periods are sufficient to adjust policies, technical notes, contracts, processes, and models already on file.
Key takeaways
A new product type relevant to a range of market participants. If adopted, the regulation would formally introduce parametric insurance into the Peruvian market. While its direct addressees are insurers and reinsurers, the proposal would also be relevant to prospective policyholders – among them companies with exposed assets, financial institutions, infrastructure operators, and, more broadly, sectors with physical, environmental, or territorial exposure – that may wish to consider these coverages as part of their risk management strategy.
Interested sectors. The draft does not restrict any industries from participation, but parametric coverages are typically associated with sectors such as infrastructure, energy, mining, agriculture, fishing, logistics, retail, real estate, hospitality, banking, telecommunications, healthcare, education, and the public sector. In these settings, they could help manage liquidity, operational continuity, or catastrophic events, although their uptake would depend on the final regulation, data availability, and the contractual design. That said, the draft limits the purchase of these products to public agencies, corporate entities, and large companies (in addition to other private organizations with sufficient technical capacity), which could impact applicability to any sector.
Data and contracts are a key focus. Under the proposal, the objective parameter, its data sources and verifiers, the threshold, and the basis risk would have to be set out precisely in the policy and in the product documentation. Reviewing the wording, data sources, triggers, and disclaimers would take on particular importance in reducing the risk of claims, disputes, and market-conduct challenges.
Regulated distribution and a heightened duty to inform. The draft contemplates that these products may be marketed directly by the insurer, through distributors under the bancassurance model, and through brokers. In addition, parametric insurance may not be designed as a hybrid product or combined with traditional insurance. An understanding of basis risk should underlie all training requirements and materials. Reviewing and promptly updating sales scripts, product guides, and disclaimers could help mitigate exposure to contingencies.
Conclusion
More than an insurance regulation, the SBS draft would aim to structure coverages that transfer risks from natural perils through objective data, verifiable parameters, and potentially faster payouts. How it develops could depend on the balance it strikes among innovation, policyholder protection, and the technical feasibility for supervised companies. In that vein, the public consultation – open until June 24, 2026 – could be an opportunity to refine a clear, workable, and understandable regulation.
How DLA Piper can help
Parametric insurance is gaining ground globally, although its legal treatment still varies across jurisdictions. DLA Piper’s Global Parametric Insurance Law Guide offers a comparative view of how different markets approach these products. Against that backdrop, the SBS proposal would place Peru among the jurisdictions moving toward an express framework for this product type. This comparative guide could help anticipate challenges that the Peruvian market will face.
For more information, please contact the authors.
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Written by:Sergio BarbozaFarah Torres
