February 2, 2021
Parametric Insurance: Using Parametrics to Speed Up Claims Settlement
There’s a growing pressure on insurance providers to deliver rapid claims payouts and parametric insurance is one method InsurTech companies are using to speed up claims settlement. Learn more about parametrics and the Insurance industry uses them for faster payouts.
Remember 18 months ago, when we could all go to a pub, pop out for a meal and hug our grannies? When no-one knew what an ‘R number’ was and Zoom’s share price was one-fifth of what it is today. I yearn for the days of being bored rigid by constant Brexit rolling news. The pandemic commanded the news for most of 2020, then Brexit popped its head up again before the news gravitated to the traditional January bad weather. These weather conditions, particularly those causing flooding, sparked an interesting topic: parametric insurance.
What is parametric insurance and why are parametrics used?
Parametrics is a statistical term that relates to parameters; numerical or measurable factors that define a system or set the conditions of its operation. When applied to Financial Services, it refers to payments based on predefined parameters. So, parametric insurance is insurance that agrees to make payments upon the occurrence of a triggering event. Utilising smart InsurTech, insurance providers can apply these parametrics so they can make faster claims payouts.
The trend for ultra-rapid claims payments is developing fast
Back to the topic of extreme weather. It seems like the climate doom-mongers are onto something because every year that passes brings more exaggerated weather events and new ‘records’. This year, 55cm of snow fell in Madrid in one night, followed by a week of sub-zero temperatures as low as -10 degrees. 150km/h winds battered Queensland Australia and the UK witnessed mass evacuations in major cities following severe snowstorms and flooding. And that’s only by mid-January.
This puts massive pressure on insurers, stretching their resources to assess claims and make time-critical payouts to breaking point. However, there’s an interesting new trend in the InsurTech industry that is developing fast: ultra-rapid claims payments. And parametric insurance is one way of achieving this.
InsurTech providers driving fast claims payouts
The poster child of InsurTech, Lemonade, was one of the first to shake up the market. The company uses blockchain to make payouts for claims under renters insurance policies into customers’ accounts, within seconds of claim authorisation.
Swiss Re offers ‘parametric flight delay insurance’ where the customer doesn’t even have to make a claim. They use a ‘trusted third party’ to automatically confirm when a flight delay occurs. The customer receives a pre-agreed compensation into their bank account upon landing. Most recently, companies like ‘Floodflash’ are using parametrics and pre-agreed settlements to make payments into customers’ accounts as quickly as 10 hours after floodwaters reach a certain level. Parametric insurance is clever stuff.
The concept of parametric insurance
The phrase ‘pre-agreed’ is important here. The concept of parametric insurance works well when you have values already agreed and clearly identifiable events. The insurance system triggers payments according to a pre-agreed parameter or metric that’s easy to determine.
Using parametrics in other insurance schemes
Take mobile phone insurance, for example. EIP has developed patented ‘Autoclaim’ technology. Our mobile app uses the gyroscope and 3-axis accelerometer in the phone to automatically detect when the phone is dropped. It then immediately creates a draft claim. If you confirm that the phone is damaged it will verify the address to collect it for repair. The whole claim process with EIP App takes 10 seconds and requires two button presses.
Summary: Parametric insurance helps to drive better customer experiences
Parametric insurance is an exciting trend that could transform the industry. Whilst it won’t work for all types of insurance, it clearly has its place where there’s a need for time-critical claim settlements. It’s just one of the key areas where the new wave of InsurTech companies will drive a vastly improved customer experience. The days of filling out pointless claims forms or sitting for hours in a call-centre queue may soon be just quaint anecdotes for grandkids.
If you’d like to know more about EIP, explore the EIP website and learn about our innovative insurance software solutions.
Author: Ross Sinclair (CEO at EIP Ltd.)
EIP is a leading global InsurTech company delivering digital insurance solutions to Telecoms, Banking and Lifestyle insurance providers. We’re an InsurTech100 company and some of the world’s biggest brands use our end-to-end software solutions. To learn more about EIP please get in touch.
