Covid-19 and its aftermath have brought to light many disparities in our society, particularly in terms of health insurance. With unforeseen levels of uncertainty and instability, the events of the pandemic have shown how the structure of insurance policies is unable to adapt to the needs of policyholders at a time when health coverage is needed most.
With traditional policies, a set of rigid terms dictate what health incidents are covered and what conditions must be met to receive payment, including but not limited to age, gender, or pre-existing conditions.
Parametric insurance (PI), on the other hand, is a type of insurance that is emerging as the preferred approach to insurance coverage. PI is becoming increasingly popular because it breaks policies down into a series of parameters, and if that parameter is met, coverage is confirmed and payment is executed – instantly.
With the ability to respond to an increased prioritization of health as well as the flexibility needed for our tumultuous times, PI shows it can deliver a more realistic approach to insurance in 2022 that works alongside policyholders and their needs. Let’s see how this approach to insurance is helping to modernize the insurance industry as a whole.
Times are changing’
Although a major contributor, the pandemic is not the only event that has catalyzed demand for change in insurance. There are also a host of other factors that are beginning to become critical, such as the increasing number of natural disasters.
From 1990 to 2019, a total of 9,924 natural disasters occurred around the world. According to Institute for Economics and Peace it was equivalent a 915% increase in such events over the same period.
The biggest roadblocks that insurance companies need to tackle first are old-school systems, so they can start building a more practical architecture for coverage. In the case of weather events, parametric insurance policies allow companies to pay policyholders based on a particular event, not the damage suffered by it.
This transforms the capabilities of insurance, not only opening up new ways to provide better coverage, but also changing the ways in which coverage can be applied.
Take the example of the risk of flooding for populations living near a watercourse. If an insurance company used parametric policies for natural disasters, they could install a river sensor in that case, and the criteria for coverage would be very simple.
When the water level becomes high enough to reach the sensor, the parameters are fulfilled. When the river crosses this level, an insured village would then receive the amount of money indicated in the policy so that it could move before the flood occurred, thus avoiding natural disaster altogether.
By helping to offer a new generation of policies, PI shows that insurance can adapt with the times and not only better support policyholders but go even further in prevention. This will help the insurance industry better position in the value chain and turn a new page for modern times.
Scaling IP Insurance
PI products are common across the banking and government spectrum, but have yet to become mainstream for individuals. The biggest challenge in implementing large-scale PI for personal policies is a matter of functionality. As products become more sophisticated, they also become more difficult to manage.
An additional challenge with PI for large entities is that it can affect regulations, distribution, and risk assessment, making it difficult to build metrics in the first place. What is needed to truly scale PI is an infrastructure driven by the end product. For the insurance industry, this is the coverage ultimately provided to policyholders.
Raincoat is an insurance company that has created a revolutionary approach to IP that enables the end product through its scalable and automated weather insurance solution. Working directly with insurers to identify the climate-related issues policyholders face, they then use this data and craft a fully packaged, end-to-end climate-related insurance product or protection program.
The company is able to absorb typical insurance challenges that arise from software, regulation, capacity, science and data through its fully functional platform that automates the entire cycle life insurance. With its highly experienced team of scientists, engineers and insurance experts, a team effort helps the company provide individuals and large entities with products that protect against the risk of natural disasters.
Announcing this week that he has lifted a $4.5 million funding round, Raincoat’s comprehensive approach appears to differentiate the company in the burgeoning IP space. With the company’s white-label weather insurance products, a new generation of insurance will be achievable.
The future of health insurance
End-to-end insurance policies will help companies start offering products and packages that cover an ecosystem of needs rather than a limited category. According to the 2022 McKinsey Insurance Report, this transition will help unlock $60 trillion in business revenue by 2030.00
Heralded as a potential solution to the inefficiencies seen in traditional insurance policies, PI protects an insured against the occurrence of a specific event when a framework of parameters is met.
Adapting to modern coverage needs in 2022, parametric insurance will help rapidly transform insurance so it can better prioritize and protect society’s well-being in an increasingly unpredictable world.
Disclosure: This article mentions a client of an Espacio portfolio company.