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🎯 '''Indemnity trigger''' is the mechanism within an [[Definition:Insurance policy | insurance policy]] or [[Definition:Reinsurance contract | reinsurance contract]] that defines the specific condition — typically the insured's actual, demonstrated financial loss — that must be satisfied before the [[Definition:Insurance carrier | insurer]] or [[Definition:Reinsurer | reinsurer]] becomes obligated to pay. In contrast to [[Definition:Parametric trigger | parametric triggers]], which activate based on a measurable external index such as wind speed or earthquake magnitude, an indemnity trigger requires proof that the [[Definition:Insured | insured]] suffered a quantifiable loss directly resulting from a covered event.

🔧 When a [[Definition:Claim | claim]] is filed under a policy with an indemnity trigger, the [[Definition:Claims adjuster | adjuster]] must verify the occurrence of the covered event, establish a causal link to the claimed damages, and calculate the actual financial impact after applying [[Definition:Deductible | deductibles]] and [[Definition:Policy limit | limits]]. In [[Definition:Reinsurance | reinsurance]], an indemnity trigger means the [[Definition:Cedant | cedant]] must first pay or become liable for losses before passing them through to the reinsurer — the reinsurer's obligation mirrors the cedant's actual experience rather than a modeled or indexed outcome. This sequential dependency creates what practitioners call "follow the fortunes" or "follow the settlements" dynamics, where the reinsurer honors the cedant's reasonable [[Definition:Claim settlement | claims decisions]] without second-guessing every adjustment.

📊 The choice of trigger type carries profound implications for [[Definition:Basis risk | basis risk]], speed of payment, and the complexity of [[Definition:Claims handling | claims administration]]. Indemnity triggers virtually eliminate basis risk — the insured receives compensation matched to their actual loss — but they demand extensive documentation, third-party verification, and often protracted adjustment periods, particularly for large [[Definition:Catastrophe loss | catastrophe events]] involving thousands of individual claims. This trade-off is exactly why [[Definition:Parametric insurance | parametric]] and [[Definition:Index-based insurance | index-based]] products have emerged as complements: they sacrifice the precision of an indemnity trigger for near-instant payouts. Many sophisticated [[Definition:Risk transfer | risk transfer]] programs now blend both trigger types across different layers, using indemnity triggers where accuracy is paramount and parametric triggers where liquidity speed matters most.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Parametric trigger]]
* [[Definition:Basis risk]]
* [[Definition:Loss trigger]]
* [[Definition:Indemnity-based reinsurance]]
* [[Definition:Claims-made trigger]]
* [[Definition:Occurrence trigger]]
{{Div col end}}

Definition:Indemnity trigger - Revision history

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