Transaction Cost
Parametric insurance may reduce transaction costs involved in writing and administering insurance policies because there is less need for actual loss assessment for payment of claims or underwriting rating requirements to determine the premium based on liabilities and extent of risk sharing.
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“History is strewn with the wrecks of nations which have gained a little progressiveness at the cost of a great deal of hard manliness, and have thus prepared themselves for destruction as soon as the the movements of the world gave a chance for it.”
—Walter Bagehot (1826–1877)