I don’t think you need me to point out how happy an insured would feel if their flight got delayed and their insurer managed to relay this information to them even before the airline, while also offering them cash compensation on the spot or lounge access while they wait for the next flight. This is what parametric insurance does. And it’s proving so popular, more and more insurers are getting onboard with it.
Parametric insurance models remove the need for the customer to file a claim, find and send accompanying paperwork and proof, and wait it out until their insurer contacts them with their decision on whether they are indeed covered and how much they are willing to pay out. Instead, parametric insurance creates a different type of opportunity for insurers to improve the customer experience, building trust and loyalty.
“Research consistently shows that human brains do not process uncertainty rationally,” said Kate Stillwell, Founder & CEO of Jumpstart, a US-based company offering parametric cover for earthquakes, in an article for PropertyCasualty360. “The greater the uncertainty, the more distrustful and adversarial customers behave. Parametric alleviates distrust by building in certainty to the outcome.” As the trigger data is available to both the insurer and the policyholder, it ‘reduces the perception of unfairness’, she says.
Such transparency and preset criterion are vital to the success of such models. “Parametric insurance offers speed and certainty, as it is based on data, parameters, and pre-defined triggering events,” said Mark Seddon, CEO at Pact, a UK-based insurtech firm. “The key is the lack of moral ambiguity. Neither those who determine the triggers, nor those claiming, can manipulate the triggers.”
In an age where speed is currency, the convenience of parametric models is another bonus for consumers. The combination of data, mobile technology and artificial intelligence allows insurers to provide a product that is simple to use and hassle-free, meaning the whole process doesn’t get in the way of users’ busy lives, says Paul Prendergast, former CEO of Ireland-based insurtech company Blink Parametric, part of CPP Group.
At the same time, the personalisation afforded by the very specific cover parameters and the in-your-pocket nature of parametric cover appeals to today’s insurance buyer. “We are all consumers and when we use a service that provides speed, convenience and intuitive solutions to meet our needs, it leaves a lasting impression,” said Prendergast.
Parametric insurance offers speed and certainty, as it is based on data, parameters, and pre-defined triggering events
One of the major benefits of happy customers is, of course, customer retention, and this is something that all insurers strive for. Insurers also benefit from the elimination of uncertainty that the parametric model provides – knowing upfront the potential cost of payouts, insurers can better predict their losses and set rates accordingly.
“Parametric models’ use of objectively measurable events can facilitate measurement and foretelling of possible losses and claims,” Seddon said. “For example, wind speed parameters in a defined geographic location being triggered