Work has begun in what has been claimed to be the world’s first pandemic insurance product based on parametric triggers.
Boston-based technology firm Machine Cover, which creates parametric products for the insurance industry, announced it is working on the new product amid the growing issues faced by underwriters in the current COVID-19 pandemic.
The firm said the COVID-19 crisis had revealed a critical gap in insurance cover as disputes between underwriters and policyholders over business interruption (BI) policies threatened to result in a series of high-profile court cases across the world.
“Currently-available insurance products are not fit for purpose because they do not cover companies for unforeseen consequences such as unexpected shortfalls in revenues, the inability to trade, and the cost of letting go of members of staff,” said Machine Cover Founder and Chief Executive Officer Inder-Jeet Gujral (pic). “The inadequacy of BI policies has resulted in large numbers of businesses issuing lawsuits against their insurers to try to recover cash to which they believe they were entitled. In many cases, businesses have been unable to continue trading because the pandemic has resulted in shortfalls few could have foreseen.”
The aim is the creation of a parametric product that businesses can purchase as an add-on to their existing commercial policy. The policy will automatically pay out in circumstances where there is a very significant decline in economic activity. A payment would be triggered by a number of clearly defined events.
If the policy is triggered as a result of the agreed parametric measure, businesses will receive a prompt and automatic pay-out without the need to make a claim.
Mr Gujral added: “Our product uses parametric triggers to determine when there is a significant drop in economic activity in a given area – it could be caused by a pandemic, a large factory closing, or major road-building activity, we don’t mind – and the policyholder will be automatically paid an agreed amount.
“If something happens which is outside the control of a business owner, they get a quick, no-questions-asked payment to help their cashflow. This is exactly the type of coverage which countless thousands of businesses thought they had paid for when they bought their current BI policies before the coronavirus pandemic.”
Mr. Gujral said he was aiming to take the pandemic product to market in the first quarter of 2021.
He added the firm was open to either distributing the product exclusively through a single carrier, or through multiple insurers who could then offer the cover as an add-on product when selling commercial insurance to their clients.