Machine Cover, an insurtech company that creates parametric products for the insurance industry, has announced that it is developing what is believed to be the world’s first parametric-based pandemic insurance.
Machine Cover said that the COVID-19 outbreak has revealed a “critical gap” in insurance coverage, as many business interruption (BI) policies don’t cover pandemics.
“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 Inder-Jeet Gujral, founder and CEO of Machine Cover. “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.”
Machine Cover is developing a parametric insurance 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,” Machine Cover said.
The payout will be triggered by a number of defined events. If the policy is triggered as the result of an agreed parametric measure, the business will receive an automatic payout without the need to make a claim.
“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 automatically be paid an agreed amount,” Gujral said. “If something happens which is outside the control of the business owner, they get a quick, no-questions-asked payout 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.
Gujral said he hoped to take the pandemic product to market in the first quarter of 2021. He said he was open to distributing the product through a single carrier, or through multiple insurers who could offer it as an add-on to commercial insurance.