According to the insurer, within the next 10 years, more detailed data and technology solutions will become more widely accessible.
While parametrics is not a new concept, having been used for many years by the reinsurance sector, its migration into consumer travel is still in its infancy. According to Google Trends, the global pandemic’s impact has expedited consumers’ demand to better protect their travel purchases, with worldwide searches for travel insurance in April 2022 reaching the highest level in 12 months.
Two examples of how parametrics are successfully applied to the travel sector are precipitation insurance and flight delay insurance, where customers benefit from instant compensation and a hassle-free claims process.
Parametric insurance has clear advantage over traditional insurance
Parametric insurance is a type of insurance triggered by an objective event. The objective event is measured by a third-party data source which measures something quantitative, and the insurance is automatically triggered if the quantity crosses a predefined threshold.
It provides a significant advantage over the traditional insurance claim process. Parametric insurance is fully automatic, meaning there is no need for the customer to initiate a claim for compensation – the policy is automatically triggered when the objective event happens.
Amnon Keiny, Product Director at Pattern Insurance, commented: “Most people know they can’t do without insurance, but they’re not too enthusiastic about having it either because of the hassle that comes with it; it takes time. Parametric is the opposite of that. The customer just buys it, and from that point on, they are taken care of from that point on.”
While many covers aren’t parametric, Keiny argues that the trends seem to point towards greater adoption of this type of insurance over the coming decade, fuelled by the emergence of agile insurtechs who can respond faster than traditional insurers and effectively close the protection gap.
“With the more widespread adoption of the Internet of Things, everything is more connected. There’s room for more types of insurance to become parametric. Eventually, we’re likely to see every type of insurance working like this,” explained Keiny.