Is parametric insurance going to become the default setting in the Travel sector? Pattern think so, here’s the word;
Instant compensation driven by developments in parametric insurance is set to become a prominent offering in the travel insurance industry. According to experts at embedded insurance provider, Pattern, within the next ten 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 twelve months.
Two great 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 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, providing
“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. And if the objective event happens, the customer gets the money immediately with no questions asked. There’s no need to make a phone call or file any documents,” explains Amnon Keiny, Product Director at Pattern Insurance.
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, and 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,” explains Keiny. “It’s going to take a long time for insurance to go fully parametric, but in the coming decade, the products and availability will grow. It will switch from being viewed as the latest innovation to something that consumers look for, and with that consumer demand will come more widespread adoption,” he adds.