New Applications For Parametric Insurance

The first parametric insurance products- which pay when certain parameters are met, regardless of the actual loss assessment- were introduced two decades ago to protect against natural disasters like cyclones and earthquakes. But they were slow to catch on. Now, a new generation of parametric policies is drawing on advances in data science, sensor technology and artificial intelligence to expand use cases.

Parametric insurance doesn’t require verification of an actual property loss before a client payment is delieverd. A parametric crop insurance policy, for example, cloud be triggered- and local farmers paid almost immediately- if wind speeds (the “index”) in a certain locale reach 75 miles per hour (the “trigger”) during the growing season. When the index is triggered, no questions are asked and there are no disputes: “That is what makes it appealing to risk managers”.

Another new product, created by Marash in collaboration with Munich Re and Metabiota, uses a Pathogen Sentiment Index that gauges public fear to protect businesses against the economic impact of infections disease outbreaks. If, for example, community anxiety reaches a certain level due to a local Zika outbreak and a sport arena has to cancel a basketball game, it could be entitled to a payment.

What enables these new products is greater access to data and increased ability to crunch the numbers. “Data is changing the way people buy insurance”, says Cripps, and parametric insurance looks to be a part of it.