use cases from freight insurance to server downtime coverage .”
Hara believes that , eventually , we will see parametric insurance unshackle itself from the bounds of nat cat lines : “ We envision a future where , with the right data , you could feasibly insure against drops in customer sentiment or other non-damage impacts on business profitability ,” he says . “ There ’ s a lot of growth yet to emerge from the parametric markets .”
Working hand-in-hand with indemnity insurance One of the industry ’ s sore points so far – at least in the eyes of the consumer , who is only interested in affordable cover that pays out when their property is damaged – is the notion of parametric insurance as a stopgap measure . The lack of loss adjusters means quicker claims payouts . Still , it can also lead to customers being out of pocket if the actual loss they incur from a serious weather event is greater than the compensation agreed with their insurer when they took out the policy . Consequently , many consumers see parametric insurance as a type of ‘ bounceback cover ’, used to get them back on their feet while they wait for their traditional insurance policy to run its long and arduous course .
This is a perception that parametric insurers must address – but collaborating with incumbent insurers could be the sector ’ s strength , rather than its weakness . “ Negative basis risk – the difference between actual economic loss and insured loss – is a potential challenge to parametrics ,” Lacovara says .
“ Indemnity , however , also has basis risk : it ’ s included as terms , conditions , deductibles , exclusions , sub-limits and so on . The brightest future for indemnity and parametric is incorporating the best elements of each into a more cohesive solution , which provides the
“ THE COMMERCIAL SATELLITE INDUSTRY
HAS PROVIDED THE INFORMATION
NECESSARY TO
BUILD PARAMETRIC PROGRAMMES WORLDWIDE ”
PETER LACOVARA HEAD OF COMMERCIAL ,
FLOODBASE
expediency and broadness of a parametric while eliminating gaps .
“ While many parametric programmes are designed to dovetail with conventional indemnity programmes , they continue to be separate policies largely because of the challenges of aligning two necessarily different policy forms . Many insurers are looking at offering indemnity and parametric together , especially in the personal lines space . For flood or wind coverage , individuals can benefit immensely from the addition of a parametric as an endorsement onto a homeowner ’ s policy . A single buying process with aligned policy forms would increase parametrics ’ penetration into all insurance segments , and close the global protection gap .”
“ There are many more ways in which [ parametric policies ] can work to benefit customers and insurers – particularly in the reinsurance space ,” Hara adds . “ That ’ s why we ’ re always keen to show how parametrics enhance the market as an additional source of coverage , rather than competing for the same policies .” insurtechdigital . com 83