Parametric insurance: just the ticket for a struggling travel insurance sector
Carl Carter, UK Country CEO of CPP Group, discusses the growing popularity of parametric insurance solutions, how they help customers, and why they could prove instrumental for travel insurance companies forced to differentiate in an increasingly competitive market
The global hiatus on travel brought the travel sector to an abrupt halt last year. As planes were grounded and journeys prohibited both nationally and internationally, several travel insurance companies exited the market altogether. This, alongside policy wordings that changed daily and an initial lack of clarity around pandemic coverage, has led to increased customer distrust and poor consumer confidence in travel insurance.
Even now as travel restrictions relax, disruption persists in one form or another: border issues, PCR testing, Brexit, flight scheduling issues and fluctuating travel guidelines – today’s traveller faces increasing friction at every turn in their journey compared to two years ago.
While over two-thirds (67.3 per cent) of the population are fully vaccinated in the UK, it’s also worth remembering that the story elsewhere in the world is very different. Just a month ago, for example, Russia reported record-high Covid deaths as a third wave of infections continues to sweep across the country.
Travel insurance is a commodity market globally, and there’s therefore a pressing, global need for the sector to (re)gain consumer trust and differentiate their products to futureproof their businesses.
Specialist cover becoming standard
An increasing number of the travel insurers that have survived the past 18 months or so have been looking to differentiate and increase customer trust by improving the customer experience or upgrading the cover offered by moving to include an increasing number of what were previously ancillary product options into their core product offerings.
We’ve seen so-called ‘specialist’ features and options transition to become standard products before – within the motor trade industry, for instance.
If you purchased a car 15 years ago, it’s highly likely it didn’t come with electric windows, air conditioning or a built-in satnav system as standard. Competition within the motor industry has forced these once considered ‘specialist’ add-ons to become mainstream, and consumers’ expectations now match this.
This trend is increasingly applying to the travel insurance sector. Parametric insurance services that were once on the peripheries, such as flight delay, are now being rolled into the core offering of major travel insurance brands and global A-rated travel insurers.
CPP’s tech-only solutions enable us to be insurer agnostic at a global scale, and we are also able to adapt the parametric triggers and resolutions. We work with insurers and travel insurance brands across the world on our CPP Blink Parametric suite of services and products, offering these either as separate to stand-alone insurance, as an add-on option or as an add-on feature embedded within main insurance lines.
Such flexibility is inevitably an attractive solution to corporate brand partners and customers alike.
Miles ahead: innovative parametric technology
This summer, CPP launched a world-first parametric lost luggage product, Smart Luggage, in partnership with the travel insurance provider Just Travel Cover. The product uses parametric technology to offer real-time support to airline passengers whose checked luggage cannot be located following an airport arrival, including ‘real-time’ claim validation, instant support and luggage loss or delay claims payment without the traditional requirement or delay due to a claim form.
While by value, travel delay is not necessarily a golden goose for travel insurers, it does represent a concentration of cost and volume with regards to claims handling. In addition to this, the claim handling time and cost can often be on par with the benefit itself that is being paid out.
This explains why despite only launching in August, demand for Smart Luggage has been sky-high. Its popularity is also perhaps unsurprising given that 24.8 million items of luggage were mishandled in 2018 alone, at a cost of approximately £1.8 billion to the industry.
The product’s success lies in the fact that it identifies and resolves a huge pain point for travellers through innovative technology, all with an eye to improving the customer and traveller experience.
Insurer benefits of parametric solutions
Insurers definitely benefit from parametric solutions too, saving on the cost of handling a travel delay or luggage delay claim all while offering customers delight with real-time cash assistance or airport lounge access at a time when they need it most – not later, after they’ve returned home and have to file a claim.
By automating the process from the moment the traveller registers their luggage as missing or the system identifies their flight is delayed, insurers face a potential 90-per-cent saving in claims management.
Harnessing the power of parametric for the future
No insurance sector has faced the same scale of disruption and frequency of challenges throughout the pandemic as travel insurance. But the past year and a half has also given the travel insurance industry the opportunity to reinvent itself and start to rebuild customer trust.
Parametric products will be key to kickstarting this process of rehabilitation across the travel insurance industry. Passengers value a seamless travel experience and increasingly, they will demand a seamless travel insurance experience. To deliver that, we must have a suite of automated service and insurance technologies that anticipate and remedy any issues that could potentially spoil a trip.
For instance, arriving into Geneva airport to find that your skis can’t be located is one frustration that Smart Luggage aims to ease. But what if there was no snow for your much-anticipated ski holiday?
Weather-related insurance cover for travellers
Weather is utterly critical to the holiday experience, and can bring either great joy or misery in bucket loads. CPP’s Parametric engine is also integrated into global weather data, and by tracking and identifying global weather patterns such as strong winds, snow, rain and heatwaves, we can develop pioneering parametric products like a sunshine or snow weather guarantee or benefit for holidaymakers or businesses alike.
Innovation doesn’t have to stop there, either. Ultimately, if we can identify and integrate a data stream to define an event, then we can develop a parametric product to improve that customer experience. CPP is currently collaborating with a host of partners to develop the next generation of CPP Blink parametric travel insurance solutions, focusing on other modes of transport and events.
Parametric insurance’s future application extends beyond just air travel or travel delay: whatever the disruption – be it bare slopes in Courchevel or a huge crash on the M1 delaying a flight to Amsterdam – it promises to provide consumers with reassurance and value through real-time resolution.
Parametric insurance: an opportunity flying under the radar?
Parametric insurance is removing financial risk for the customer while providing real-time automated solutions and reducing the operational cost for insurers. There is inevitably further turbulence ahead for the travel insurance industry, but parametric insurance could be just the ticket to help insurers not only survive the current market disruption, but win back consumer confidence and thrive. The opportunity is there for the taking.