Exploring Parametric Insurance and the Power of Partnerships

Instech.ie’s Gary Leyden in conversation with Chris Lee (Exante) and Alice Glenister (Mastercard).

June 2023

Introduction

Parametric insurance is gaining popularity as an innovative approach to risk management, offering policyholders quick pay-outs based on predetermined triggers. In a recent discussion between industry experts, Gary from Instech.ie, Chris from Exante, and Alice from Mastercard, the concept of parametric insurance and its potential applications were explored. This article delves into their conversation, shedding light on the difference between parametric insurance and predictive parametric insurance, the role of partnerships in driving innovation, the importance of fast claims payment, the value of data in parametric insurance, and the challenges associated with business interruption claims.

Parametric Insurance vs. Predictive Parametric Insurance

Gary initiated the discussion by seeking clarification on the difference between parametric insurance and predictive parametric insurance. Chris explained that parametric insurance involves paying out when a specific trigger event occurs, such as a natural disaster or adverse weather condition. However, predictive parametric insurance takes it a step further by leveraging forecasts and incentivizing policyholders to take proactive measures to mitigate risks. For instance, if a hailstorm is predicted, policyholders may be offered a reward for protecting their assets, thereby reducing their exposure to potential damage.

The Power of Partnerships:

Alice from Mastercard emphasized the importance of partnerships in creating innovative products and adding value to underserved communities. The collaboration between Mastercard and Exante was highlighted as a prime example of leveraging combined capabilities to launch unique insurance products that benefit both business owners and the local economy. By reducing the trust gap and providing mechanisms for resilience, these partnerships aim to address the insurance industry's historical neglect of small businesses and communities.

Fast Claims Payment

Chris discussed the importance of designing insurance products that enable fast claims payment. He shared examples from Exante's experience, where they strived to issue prepaid cards to policyholders within minutes of identifying a potential risk. By providing immediate financial assistance, policyholders could take necessary actions to safeguard their assets. While the speed of payment may vary based on the nature of the insurance product, the objective is to ensure policyholders have access to funds relatively quickly to address the challenges they face.

The Role of Data in Parametric Insurance

Alice acknowledged that data plays a crucial role in the parametric insurance space. Mastercard, being proficient in payments, recognizes the potential to enhance parametric products by bringing payments capabilities into the equation. By utilizing the data they possess, Mastercard aims to create new insurance solutions that leverage their existing capabilities and collaborate with partners to unlock new possibilities. The combination of payment expertise and data insights has the potential to revolutionize the parametric insurance market.

Harnessing Mastercard's Data

Chris emphasized the value of Mastercard's data, describing it as the "keys to the castle." The access to detailed transaction data in near real-time allows them to analyse business activity in specific geographical areas, contributing to risk assessment and understanding the impact of events like protests or sporting events. Through data analysis and extensive collaboration, Exante and Mastercard can identify patterns and triggers that may lead to business interruptions, enhancing the accuracy and effectiveness of parametric insurance products.

Challenges with Business Interruption Claims

Alice highlighted the challenges associated with traditional business interruption claims, primarily the time it takes to process and pay claims. The existing processes and services often fail to meet the immediate needs of businesses facing disruptions. Business owners are subjected to lengthy documentation, evidence collection, and back-and-forth communication, which can extend the claims settlement period to over a year. This delay in receiving funds can significantly impact cash flow, potentially leading to business closures and adverse effects on local economies.

The conversation between Gary, Chris, and Alice shed light on the evolving landscape of parametric insurance and the potential it holds for addressing various risks. Parametric insurance and predictive parametric insurance offer innovative approaches to incentivize policyholders and address specific risks. By leveraging data analytics and partnerships, insurers can enhance the claims process and provide timely support to businesses. Mastercard's data capabilities and payment expertise play a crucial role in enabling fast and efficient claim payments. As the insurance industry continues to embrace data-driven solutions, collaborative efforts between companies like Exante, Mastercard, and others will lead to new products offering protection against new and emerging risks whilst also enhancing the customer experience.

Subscribe to InsTech.ie to hear more