The law that includes the National Development Plan, approved in the last debate by the Senate of the Republic and the House of Representatives, contains 3 articles authorizing and regulating parametric insurance in Colombia. The law is pending to be signed by President Gustavo Petro.

Article 241 added numeral 4 to Article 183 of the Organic Statute of the Financial System (which refers to the operations authorized to insurers) to (i) authorize insurers to offer parametric insurance and (ii) include a definition of such insurance and a requirement for the index:

“4.  Parametric or index insurance. Insurance companies may offer insurance under the parametric or index insurance modality in which the payment, upon the occurrence of an uncertain event, shall become due upon the realization of one or several indexes defined in the insurance contract. The index or indexes must be correlated with the insured risk and the amount of the payment for the occurrence thereof shall correspond to the amount predetermined in the policy. 

The National Government may establish additional conditions for the operation of parametric or index insurance."

Furthermore, Article 242 added a second subsection to Article 1088 of the Code of Commerce (which refers to the indemnity principle of insurance) to include a description of the condition whose occurrence would give rise to the payment of indemnity by the insurer. The new text of Article 1088 is as follows:

“Regarding the insured, damage insurance will be mere indemnification contracts and can never constitute a source of enrichment for them. The indemnity may include both consequential damages and loss of profit, but the latter must be subject to express agreement.

In the case of parametric or index-based insurance, payment for the occurrence of the insured risk shall become effective upon the occurrence of the index or indexes defined in the insurance contract”.

Finally, article 243 included a third clause to article 1077 of the Code of Commerce (which refers to the burden of proof of the insured/beneficiary when filing the claim) to indicate the way the occurrence of the loss and the amount of the loss must be demonstrated in the case of parametric insurance. The following is the new text of the article:

"It shall be incumbent upon the insured to prove the occurrence of the loss, as well as the amount of the loss, if any.

The insurer shall prove the facts or circumstances excluding its liability.

In the case of parametric or index insurance, the occurrence of the loss and its amount shall be demonstrated with the occurrence of the index or indexes, in accordance with the model used in the design of the insurance and defined in the respective contract".

If you would like to consult the text of the National Development Plan, please click here.