Machine Cover, a technology company which creates parametric products for the insurance industry, has announced it is developing what is believed to be the world’s first pandemic insurance product based on parametric triggers.
The Boston, Massachusetts-based company said the COVID-19 crisis has revealed a critical gap in insurance cover after insurers stated many business interruption (BI) policies do not cover medical pandemics.
“Currently-available insurance products are not fit for purpose because they do not cover companies for unforeseen consequences such as unexpected shortfalls in revenues, the inability to trade, and the cost of letting go of members of staff,” said Machine Cover Founder and Chief Executive Officer Inder-Jeet Gujral. “The inadequacy of BI policies has resulted in large numbers of businesses issuing lawsuits against their insurers to try to recover cash to which they believe they were entitled. In many cases, businesses have been unable to continue trading because the pandemic has resulted in shortfalls few could have foreseen.”
Machine Cover is developing a parametric product that businesses can purchase as an add-on to their existing commercial policy. The policy will automatically pay out in circumstances where there is a very significant decline in economic activity. A number of defined events will trigger a payout. If the policy is triggered as a result of the agreed parametric measure, businesses will receive a prompt and automatic pay-out without the need to make a claim.
Mr Gujral added: “Our product uses parametric triggers to determine when there is a significant drop in economic activity in a given area – it could be caused by a pandemic, a large factory closing, or major road-building activity, we don’t mind – and the policy-holder will be automatically paid an agreed amount.
“If something happens which is outside the control of a business owner, they get a quick, no-questions-asked payout to help their cashflow. This is exactly the type of coverage which countless thousands of businesses thought they had paid for when they bought their current BI policies before the coronavirus pandemic.”
Mr. Gujral said he was aiming to take the pandemic product to market in the first quarter of 2021. He said he was open to either distributing the product exclusively through a single carrier, or through multiple insurers who could then offer it as an add-on product when selling commercial insurance to their clients.