Page 30 - Insurance Times February 2023

Now if the same storm causes heavy damage and disruption to another Benefits of Parametric
Insured, which has supplemented its property policy with a bespoke, index-
Insurance:
based trigger that starts paying out when wind speeds top 130 kilometer per
hour; the storm qualifies, and the insured would be able to access funds A) From the perspective of
within a few weeks to rebuild and restart operations. Customer:
1. Provides immediate solutions.
2) Under traditional Travel Insurance, if there is flight delay or cancellation, the
insured has to sort out the issue and then to provide proof to the Insurer that 2. Removes the regular time-lag in
the claim is valid. It takes weeks to collect the documents and then the insured the claim process.
gets the claim possibly few weeks later. But under parametric insurance the
3. Reduce hassle and frustrations.
flight is tracked proactively by the Insurer and before the insured knows
4. Saves precious energy and time of
something has gone wrong the claim is paid and the insured is informed. It is
the persons involved in the system.
a great experience for the traveller.
3) In the health insurance sector, Parametric Insurance policy may be designed
B) From the perspective of
as supplementary cover to Indemnity based Insurance policy. This type of
Insurer:
insurance is to cover say, the annual economic cost of pains and sufferings of
1. No need for collection of claim
the patient based on the diagnosis done by the Hospital as per ICD-10.(ICD-10
forms and other documents.
refers to the tenth edition of the International Classification of Diseases,
which is a medical coding system chiefly designed by the World Health 2. No 'people' interaction is required.
Organization). 3. Saves significant overhead and
operational costs.
Different Triggers:
The most common triggers are natural catastrophe perils such as cyclones,
Way forward:
earthquakes, bushfires, hailstorms, floods and landslides. Triggers can also include
Parametric Insurance have been
other adverse and prolonged weather events, such as excess temperature,
available since the late 1990s, but have
droughts, and insufficient sun/wind conditions.
become popular in corporate insurance
recently. Newer products are being
Data and technology are making possible additional triggers, such as pandemic
developed around the world and are
related scenarios, and cyber outages.
often described as 'elegant solution for
risk-transfer concerns'.
Difference between Indemnity based traditional
Insurance and Parametric Insurance: Today, parametric insurance model
offers untapped potential and when
Indemnity based traditional Parametric Insurance
applied in innovative ways, it can benefit
Insurance
every player in the ecosystem.
1 Payment is triggered by an Payment is triggered by an actual Parametric models have emerged as a
actual loss. event. valuable way to help the insurance world
2 Reimbursement is made via an Payment is made in alignment with fulfill the need of the under-insured
adjusted assessment of loss parameter value agreed in the while addressing customers' increasing
sustained. policy. demand for "instant everything".
3 Policy is subject to exclusions and Policy is subject to the index or
self-insured retentions. parameter. To meet the need of the retail
customers also, simple parametric
4 Claims payments are made following Payment can be made in, say within
products may be launched in Indian
assessments by adjustors and insurers 30 days without adjustor.
market paving the way to accelerate
review--often months if not.
increasing insurance penetration in our
5 The period is very often annual. Multi-year options are available up
country.
to say, 5years.
6 Policy wording is often company Policy is highly customized to meet
References:
standard. the client's requirements.
Various Sources.
The Insurance Times January 2023 27