A series of factors are currently combining to provide genuine impetus to the growth of the parametric insurance market, according to modelling veteran and partner in InsTech, London, Matthew Grant.
InsTech, London is a successful networking platform which brings entrepreneurs, insurers and investors together.
Speaking to Emerging Risks, Grant said that parametric products provide a relatively clean way of developing a loss, with most data sets “free or almost free”.
“What wouldn’t have been possible previously is now possible,” he added, suggesting that there are now four factors combining in parametric’s favour, which featured in InsTech London’s recent report, Parametric Insurance – 2021 outlook and the companies to watch:
As well as cheaper data than would have been historically available, there is now a wider acceptance of combating the issue of climate change, he said.
Add to this wider societal drives and growth from capacity providers, and the conditions are ripe for this market.
Earlier this month, a pilot for a parametric extreme weather solution for the Cambodian agricultural sector was launched as the market seeks to respond to demand to fill the protection gap.
The scheme is a partnership between Global Parametrics (GP), Arbol and AGRIBEE Crop Insurance and is designed to deliver extreme weather protection cover for smallholder rice farmers in Cambodia.
Parametric also featured as a favoured option in Lloyd’s recent report, Building simpler insurance products to better protect customers, which sets out a number of ways the global insurance industry could remove complexity and provide enhanced coverage clarity for their customers.
The report, developed in collaboration with Lloyd’s Global and UK Advisory Committees, has been published to support the global insurance industry’s efforts to better serve its customers through simpler products that promote enhanced understanding of coverages.
It provides three important recommendations that the industry should implement to respond to the challenges that Covid-19 has presented:
- Leverage and build on the application of existing leading practice, including a linguistics review of customer documentation – for both simple and more complex products.
- Invest in continuous product design and delivery innovations, including data-led policies and digital contracts, as well as exploring more radical options like parametric or outcome-based insurance.
- Involve customers directly in product design to build simpler, more relevant products for their changing needs and post-pandemic risk profiles.