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How Parametric InsurTech is critically important for the long-term future of the Insurance sector in a post COVID-19 world

By Paul Prendergast, CEO, Blink, a CPP Group Company

Right now, our priorities are rightly focused on the health and safety of our families and the protection of those that are most vulnerable in our society as we adapt to the necessary restrictions on our way of living and working during the COVID-19 crisis. We recognize the extraordinary burdens on societies as we count the cost in terms of loss of life, illness and economic hardship.  During these times, we also evaluate how we work, how we can influence change and we look to the future.  To that end, I consider the industry I know best and outline my thoughts on the potential for InsurTech and specifically the parametric insurance platform as a tool that can help make a positive difference when Insurers require operational efficiency on processing high frequency, low severity claims and when the customer needs immediate real-time claim resolution.

What is Parametric Insurance?

Parametric Insurance is one of the major global trends in insurance innovation. The movement towards utilizing big data and mobile technology to provide new, innovative solutions is revolutionising the once traditional insurance sector and in the context of challenges triggered by COVID-19, is proving pivotal for the future of insurance.

Parametric Insurance provides cover for areas that aren’t covered or are often excluded by indemnity style policies. Compensation is provided when an event occurs rather than on the loss experience. The specifics of the parameters and reimbursement values will be determined before the cover starts. The customer doesn’t have to provide proof or observe a lengthy claims process and the insurer doesn’t need to spend resource and money on assessing claims – the data does all the hard work for everyone. Customers are demanding speed, convenience and a more personalised service from their insurance products.

Examples of parametric insurance types include:

  • Protection against natural disasters; earthquakes, cyclones, hurricanes supported by measured weather data across a specific period.
  • Protection for farmers’ crops insured against damage and loss caused by air pollution, drought conditions or storm damage, again supported by measured weather data across a specific period.
  • Protection against extremely cold weather. For example, an energy provider could give automatic support to vulnerable customers where they have secured cover on the occurrence of an extended spell of freezing temperatures across a specific period.
  • Flight disruption cover for when a flight is delayed or cancelled, such as the Bink Travel disruption solution.

Parametric Insurance in practice

Taking the traditional travel insurance model as an example; something bad happens on a trip, the customer must sort out the issue and then provide proof to the Insurer that the claim is valid. This can take weeks and then the customer gets a cheque in the post possibly six weeks later. Not a great experience for the traveller.

A parametric example would be around flight delay or cancellation. The flight is tracked proactively and before the customer knows something has gone wrong the claim is paid and they are informed. This immediate pay out then allows Insurers to sort out the problem in real-time e.g. flight rebooking, cash pay outs or lounge access.

Unprecedented COVID-19 challenges facing Travel Insurers

With the COVID-19 pandemic triggering a massive influx of claims worldwide, we face a major turning point opportunity for the travel insurance industry. Claims processing delays and system inertia are the ultimate proof that a major shift in how claims are paid is now critically important for the long-term future of the sector.

Insurers battle increasingly negative consumer sentiment and confidence as they navigate:

  • A rapidly changing, at times conflicting, and a consistently unpredictable travel environment,
  • Lack of certainty for customers/policy holders seeking advice and status updates on their claim entitlements and payouts,
  • Significant volume increases on phone calls, emails and claim registrations as a result of customers having to curtail their trips in line with official advisories,
  • Dependence on claims assessors and customer services teams working to sustain the activity surge, whilst adjusting to changing internal work practices, ranging from remote working to enforced self-isolation,
  • Organisational burden as a result of reduced personnel available for work.  Smaller teams are handling more calls, customer waiting times are stretched and customer service is subject to overwhelmingly negative feedback,
  • Stressful customer experiences, leading to long-term damaging implications for brand loyalty and trust e.g. where calls are abandoned because of wait time, subsequent callbacks add to frustration and resolution of claims become protracted,
  • Lack of proactive, automated responsiveness once risk ‘event’ has occurred.  Insurer operations teams are ‘call-takers’ not ‘call-makers’.

The Insurance sector needs to be equipped to address these challenges efficiently. Whilst COVID-19 challenges are high profile at this time, parametric principles are equally relevant during periods of heightened security risk, geopolitical turmoil or everyday unforeseen circumstances, all of which can force changes into whatever contingency plans Insurers put in place and leave customers feeling exposed, worried and vulnerable.  The sector needs to do better.

What’s the solution?

Parametric Insurance isn’t an entirely new concept but with data becoming ‘big’, more accurate and trusted by consumers and businesses, Parametric Insurance solutions to a number of scenarios that would have previously been inaccessible can now be realised. It’s also becoming more commonplace to provide customers with non-cash benefits such as airport lounge access, ride-hailing credits, cinema tickets etc which are easier to provide than establishing the value of compensation in cash.

Insurance providers need to keep up with the demand for fast and intuitive solutions to customer problems. The combination of data, mobile tech and AI means that insurers can provide innovative and progressive customer experiences. Not only does this benefit the customer but also provides Insurers with integrated digital platforms that enable faster, cheaper and more scalable solutions and communication methods.

What are the benefits of Parametric Insurance?

Visibility of real-time claims activity, dashboard and full reporting analysis in a client ‘self-service’ environment is compelling and reflective of the future demands on Insurtech.

The transactional benefits are notable:

  • No claims forms required,
  • No receipts needed,
  • Rapid claims processing by reduction of operational complexities. Blink for example can process more than 60,000 high frequency, low severity claims per hour. No ‘people’ interaction required, saving significant overhead and operational costs,
  • Additional financial and time/implementation savings can be realised, saving in-house development time and financial investment and can be fully operational in weeks.

The brand benefits are precious:

  • Innovative and automated customer-centric technological approach to rapidly evolving situations,
  • Personalised communication with individual customers specific to their journey – Insurers move away from generic statements and into meaningful engagement,
  • Successful customer experiences that build loyalty through real-time customer care,

Situations can evolve quickly. What was safe yesterday might not be appropriate today and customers need to be advised quickly with uniquely personalised messaging to reassure them and resolve their queries.

Customer contact can be managed much more proactively. Outbound calls can be scheduled to manage disruption alerts rather than running contact centres that get swamped with unanticipated inbound queries.

The Blink timeframe for sorting out flight disruption issues is automated, auditable and resolved within five minutes on average.

How soon will it become commonplace?

Parametric insurance is already here – flight disruption services from Blink are already supporting hundreds of thousands of customers worldwide. It is becoming increasingly popular and other insurance categories are quickly taking note and following suit. The potential for applying Parametric Insurance solutions to more cases are limitless. IoT devices that create connected homes with the use of smart devices, smart meters and digital assistants provide huge amounts of data that can inform a multitude of solution-based parametric insurance services. For example, an insured IOT-supported domestic appliance becomes faulty, automatic fault code alerts can be issued to the Insurer triggering corrective action options such as service calls or immediate cash pay out to the owner’s bank account.

Furthermore, the change in customer attitudes towards insurance is changing at an increasingly rapid rate which is driving change to insurance products. Insurers are grappling with challenges that range from striving to lead transformative change in the sector to merely keeping up with its pace and the growing market expectation. Some Insurers have taken the strategic decision to invest in-house to varying degrees of success and some notable failures.  More Insurers are realising that they are unable to create solutions themselves and are turning to proven, agile, expert Insurtech specialists for their parametric insurance products to give them a leading edge.

We are starting to progress our understanding of the opportunities mobile tech and the IoT create (and have been for several years) and how insurance can make the most of big data that is readily available from them. While Parametric Insurance is becoming a sure way to utilise data to innovate the insurance industry, parametric solutions are not designed to replace traditional insurance policies. Used effectively, Parametric Insurance solutions can complement indemnity style policies and fill in the gaps that traditional policies have. As the Blink parametric travel solution is to travel insurance, we believe that the future of insurance will be one where parametric insurance will become an indispensable component of any product.

The COVID-19 crisis will end in time.  In the interim, we continue to build resilience into our innovations, products and services and deliver to the industry and our partners and we look forward with optimism to the future.

About Blink

Blink is an InsurTech company that designs data-driven travel disruption insurance solutions and parametric insurance product innovation, transforming clients’ complex offerings into superior service experiences with simple, intuitive, online products in sectors such as Travel, Climate, Energy and IoT.

Based in Cork, Ireland, Blink was acquired by CPP Group Plc in 2017. It made TheINSURTECH100 for 2019, an annual list of the worlds’ most innovative InsurTech companies and has experienced significant growth over the last 24 months, with insurance partners throughout Europe, Asia and North America.

For more information, visit blinkparametric.com.

SOURCE: Blink Innovation