With a second lockdown on the horizon, InsTech London is predicting that parametric insurance could plug the insurance protection gap for individuals and businesses
The Covid-19 pandemic has highlighted the need for a parametric insurance model, which could also be a key opportunity for new and existing entrants.
This is because a parametric insurance can cater to unconventional risks, where traditional policies may fall short.
This particular model can potentially plug the insurance protection gaps for individuals, SMEs and larger corporates, as well as being a possible solution to insure future pandemics.
This is according to a new report Parametric Insurance 2021: Outlook and the Companies to Watch released by network InsTech London today to help provide context to parametric insurance – its beginnings, what it can offer and its future.
The report features more than 50 companies that InsTech London believes are the “ones to watch” in the realm of parametric insurance, this includes Setoo, Parametrix and JBA, as well as more established firms such as FloodFlash, Aon and Blink.
Matthew Grant, partner at InsTech London and co-author of the report, said: “Parametric insurance is one of the top 10 themes that we are focusing on. We’ve been watching this market develop and the companies that are really making a difference for over 20 years.
“The industry is now at a point where the data and technology are available at a cost that makes it accessible for new companies – or existing ones – to enter this space and help solve the problem of the uninsured and uninsurable.”
Parmjeet Kaur, InsurePro’s founder, helped to compile the final report, alongside the report’s sponsors and the InsTech London community.
The report’s publication follows yesterday’s news that Parametrix teamed up with Lloyd’s of London to launch a new parametric-based business interruption policy for SMEs.
Parametric insurance is not a new concept - in the past, it was mainly used for flood insurance, but this is changing and it is now increasingly being used in niche markets.
It is a type of cover that is triggered by a specific event, often a natural catastrophe. Parametric insurance has a set trigger and when this occurs, the policyholder gets a payout. However, elements such as indices are needed in the first instance to help it work.
Grant added: “Parametric covers are now being considered across the full spectrum of risk types and sizes. Technology exists to define and deliver insurance coverage based on real-time reporting of accurate data.
“Parametric insurance is starting to offer attractive solutions where conventional insurance has failed. Some of the largest insurance organisations, most notably Munich Re, Swiss Re and AXA, are structuring innovative placements.”
As well as the longstanding insurance players, new companies offering parametric insurance are also emerging, such as Machine Cover.
There have also been some recent partnerships in this space, including Generali providing capital and access to its client MGA Descartes, broker Gallagher providing a route to market for FloodFlash and Lloyd’s of London insurer Chaucer providing capacity to Qomplx.
The report stated: “Partnerships between the new entrants and the establishment are essential.”
InsTech London expects more acquisitions in the insurance industry as firms look to bring parametric solutions in-house.
One of the key challenges for startups is scaling up, as funding is needed to do this.
However, Grant added that parametric insurance is getting easier and cheaper to offer, with some data sources and indices being free. He believes, therefore, that the major costs will be from marketing and distribution.
Grant said: “Parametric insurance is at heart a simple concept, but it can appear confusing given the diversity of offerings and companies in this space. At InsTech London we look for the companies, both new and old, offering data and analytics, then [we] explore where these fit between the customer and the capital. It is refreshing to hear from new companies, but established ones should not be ignored. “
Grant added that many of the companies that are active in parametric insurance offer what appear to be “blended solutions of technology and insurance”.
Technology is providing opportunities for parametric insurance, offer tools such as real-time reporting of accurate data, micro payments over phone networks, apps, embedded insurance, smart contracts and the Internet of Things (IoT).
Grant continued: “Most of them aim to make money in only one of three core areas: distribution, data and analytics or underwriting.”
The report said that up until a few years ago, almost all indices were weather or disaster related, but today many more opportunities are possible, for example cyber, footfall and crop failure, to name a few.