The COVID-19 crisis has highlighted the need for new parametric insurance products for both traditional and new risks, according to a report by insurance group InsTech London.
Parametric insurance has the potential to deliver on the promise of insurtech and fill gaps in insurance protection for individuals, SMEs and corporates worldwide, according to InsTech London’s Parametric Insurance – 2021 outlook and the companies to watch report.
In 2019, there was about $140 billion in economic losses from man-made and natural disasters, according to a Swiss Re estimate. Traditional insurance covered only about $56 billion, or 40%, of that amount.
“With the increasing risk from climate change and denser populations, losses will continue to rise,” InsTech London said. “Without a new approach to conventional insurance, coverage for most of these costs will still not be recovered by those affected.”
“Parametric insurance is one of the top 10 themes that we are focusing on,” said Matthew Grant, partner at InsTech London. “We’ve been watching this market develop, and the companies that are really making a difference, for over 20 years. The industry is now at a point where the data and technology are available at a cost that makes it accessible for new companies – or existing ones – to enter this space and help solve the problem of the uninsured and uninsurable.”
With technology now able to deliver coverage based on real-time data reporting, parametric insurance can succeed where conventional insurance has failed, InsTech London said. Parametric cover is now being considered across a wide range of risks, including earthquakes, hurricanes and flood. Triggers include shake density, wind speed, and water depth or rainfall, InsTech London said.
Some of the largest reinsurance organizations, including Munich Re, Swiss Re and AXA, are structuring parametric placements, while new companies are emerging and finding customers and investors both within and outside the insurance sector.
“Parametric insurance has now found its place at the risk transfer table, where it will fill some of the gaps left by traditional insurance solutions,” InsTech London said.