How Are Indemnity Amounts Determined For PRF Insurance?

News that your PRF policy has triggered an indemnity for one of your insured intervals is always welcome, but have you ever wondered how your indemnity amounts are decided? There are 3 contributing factors of your policy that determine the dollar amount of indemnity that can be issued for an interval:

1. Coverage level %:

This percentage can range from 70-90% and refers to the amount of normal precipitation that your policy insures. (i.e. if your coverage level is 70% then your policy would trigger indemnities when you receive less than 70% of average precipitation for a covered grid within an insured interval)

2. % of Normal Rainfall Recorded for a Grid:

This percentage is reported on a per grid, per interval basis. It represents the amount of precipitation your insured grid(s) received within an insured interval compared to that grid’s average for that specific interval

3. Dollars of Coverage:

This number is also reported on a per grid, per interval basis. Your dollars of coverage refers to the total potential indemnity you could receive for each of your covered grids within each of your covered intervals if there is no recorded precipitation.  

In equation form, the calculation to determine your indemnity amount per interval would look like this:

How Can You Impact Your Indemnity Amounts?

The only time you can alter your potential indemnity amount is during the creation stage of your policy. While meeting with your agent, discuss your options regarding your coverage level, dollars of coverage, and understand how these variables will affect your policy’s risk level. For more information on risk levels, visit our PRF Insurance decision guide and check out our other educational resources for all things PRF!