The Neptune Mutual protocol is based on a parametric cover model (also known as index-based insurance), a novel and forward-thinking alternative to conventional insurance.
What Is Parametric Coverage and How Does It Work?#
A parametric coverage protects policyholders against financial loss as a consequence of a specific occurrence (also known as a cover incident). Policyholders pay a premium (sometimes known as a policy fee) in exchange for coverage for a certain period of time and a specific amount. Not only can each cover pool's parameters be independently verified, but they are also transparent and consistent. Users are not required to produce evidence of loss, and loss adjusters are not required to verify and/or analyze claims. Because it does not need case-by-case review like Nexus Mutual, the claims payment is a fast and painless procedure.
The Neptune Mutual protocol also introduces the notion of common or mutual ownership of liquidity pools, where liquidity can be crowd-pooled to protect policyholders from financial loss. The pool allows liquidity providers (LPs) to benefit from the policy fees that customers pay. Other benefits are available to LPs, as stated in the following article:
The parametric model is used extensively in the conventional insurance sector to protect policyholders against natural catastrophes. Because it doesn't need a claims accessor to make settlements, this coverage model has been getting a lot of attention because of how easily and quickly settlements can be made.