- Enter annual trigger probability
Estimate the chance that the specified contract trigger occurs during one year.
- Enter the trigger payout
Use the payout amount associated with that threshold or tier.
- Add the annual premium
This is optional for expected claim value but lets you compare expected payout with price.
- Review expected claim value
The main result is the probability-weighted expected payout for one year.
- Check the comparison metrics
Use the premium ratio and expected claim minus premium as simple pricing context, not as a full risk model.
Parametric Insurance Expected Claim Calculator
This calculator estimates the expected annual claim payment from a simple parametric insurance trigger. It multiplies the probability that the defined trigger occurs by the contractual payout attached to that trigger, giving a probability-weighted dollar value for one policy year.
The result can help compare premium levels, payout structures, or alternative trigger thresholds on a common expected-value basis. It does not estimate indemnity loss and it does not account for basis risk, multiple trigger tiers, reinstatements, or contract-specific caps unless you incorporate those features into the payout assumption.
Estimate expected parametric claim value
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USD
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Result
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Expected annual claim payment
Expected annual claim—
Expected claim minus premium—
Probability of no trigger—
Premium / expected claim—
Formula:
Expected annual claim = Trigger probability × Trigger payoutWhere:
- Trigger probability: annual chance of the insured parameter reaching the trigger, as a decimal
- Trigger payout: contractual amount paid if the trigger occurs
Assumptions: This simplified model assumes one binary trigger opportunity per year. Tiered triggers, multiple events, aggregate limits, and reinstatements require a more detailed expected-value model.
What the result means
The result is a long-run probability-weighted payout, not the amount you should expect to receive in any particular year.
Actual claims depend on the contract trigger and the independent data source specified in the policy.
Given:
- Annual trigger probability: 12%
- Trigger payout: $75,000
- Annual premium: $6,000
Calculation:
Expected claim = 0.12 × $75,000 = $9,000. Expected claim minus premium = $9,000 − $6,000 = $3,000.
Result: Expected annual claim payment: $9,000.
Interpretation: Across many comparable exposures, the modeled average payout is $9,000 per year. A single year will usually produce either the contracted payout or no payout.
Is the expected claim the same as the most likely claim?
No. For a binary parametric trigger, the most common annual outcome may be zero while the expected value is a probability-weighted average across many possible years.
What probability should I enter?
Use a probability that matches the exact trigger threshold, location, measurement source, and policy period. Historical frequency may be a starting point, but changing climate, operations, or data quality can make history imperfect.
How do tiered payouts affect the calculation?
Calculate each mutually exclusive trigger tier as probability × payout and add the results. This page models one trigger payout at a time.
Does a positive expected claim minus premium mean the policy is underpriced?
Not necessarily. Premium also reflects expenses, capital, uncertainty, correlation, contract terms, and the insurer’s required return.
Does this model include basis risk?
No. It values the contractual trigger payout only. It does not compare that payout with your actual financial loss.