More than US$1.3 billion in insurtech funding was completed during the third quarter – more than double the amount from the previous quarter, according to new figures from Willis Towers Watson.
According to the company’s Quarterly InsurTech Briefing, there were eight transactions over US$40 million in Q3, up from six the previous quarter.
Willis Towers Watson’s latest briefing focuses on how insurtech companies are deploying parametric structures. Unlike indemnity-based insurance, parametric products pay out a predefined sum based on a trigger chosen as a proxy for actual loss. Parametric products align the interests of insurers and insureds by removing their incentives to manage down or inflate claims, respectively. Parametric insurance is also simpler than indemnity products, since it doesn’t require expensive claims handling, Willis Towers Watson said.
“The impact of parametric insurance can be much more profound than simply lowering frictional costs and mitigating the potential for fraud,” said Rafal Walkiewicz, CEO of Willis Towers Watson Securities. “First, the use of parametric insurance encourages conversation around risk mitigation. Second, the simplicity of parametric insurance facilitates a decoupling of the various functions of the industry value chain and it allows for modularization.”
“When automated correctly, besides being increasingly economical to deploy, parametric products are an important tool to access underserved segments and bridge coverage gaps,” said Dr. Magdalena Ramada, Willis Towers Watson senior economist. “Their underlying policy structure and digital nature fundamentally reduce the complexity and frictional costs of traditional insurance, allowing for the simplicity, scalability and flexibility needed to cater to most of these markets.