Comment: Is 2020 the year of Parametric Insurance?

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Post content director Jonathan Swift ponders whether Parametric insurance will live up to the hype of being The Next Big Thing, in the way that Blockchain has perhaps failed to.

As a music-mad teenager I used to love the first editions of the dedicated weekly papers [Melody Maker, NME et al] at the start of the year to see what they were predicting in terms of trends and bands that would make it big over the upcoming 12 months.

Of course many of these groups and so-called ‘scenes’ would usually fizzle out within the year following a predictable backlash when people decided the early hype wasn’t matched by much substance.

I mention this because I was intrigued by a headline on the BBC in February,: Blockchain: the revolution that hasn’t quite happened.

Because as in music, insurance has its fair share of hype and bluster too about what is going to be ‘The Next Big Thing’. Which for those attending conferences five years ago was certainly blockchain as speakers took to lecterns the world over to hail its potential.

Now distributed ledger technology is not exactly up there with failed music movements – such as Romo and the ‘best new band in Britain’, such as Terris – as a total damp squib, but blockchain has still not made the waves some expected.

Which brings me onto 2020 and another buzz word that has been gaining momentum over the past few years and looks like being this year’s blockchain in terms of event notoriety and omnipresence: parametrics.

The first event I attended in January featured such a session, and I suspect it won’t be the last I see during the upcoming 12-24 months.

Which poses the question, is parametrics going to go mainstream? Or will remain a feature of niche markets like index linked securities and microinsurance?

Early signs show some positivity as it is making small dents in consumer markets such as travel and property insurance.

The latter is particularly relevant given the damage that has recently been reaped by Storms Ciara and then Dennis. After the first event I spoke to Floodflash co-founder Adam Rimmer who told me that this was the moment of truth for the insurtech – that uses sensors to make payments based on the depth of flood and pre-arranged triggers. So at the point of loss rather than first notification.

“Parametrics is very much a buzz word in the insurance sector,” he added, “but what [Ciara] has shown is that the model works. It has totally vinidcated all the work we have put in over the last two and a half years and proven we have developed a product that does exactly what customers expected it to do.”

In Everest Re-backed Floodflash’s case this represented six claims worth £375,000 in total paid in an average of 28 hours.

Following the event brokers were quick to give Floodflash testimonials as to their surprise at the results in terms of speed of payments and client satisfaction.

Andy Green, a director at C&C Insurance Brokers exclaimed: “In 20 plus years in the insurance industry this is by far and away the best I have seen. From your initial notification, to seeing the client today and settlement all in one working day, truly amazing.”

Meanwhile Lucy Thornhill, a director at Thornhill Insurance, added: “This is the smoothest claim we’ve ever had. On a Sunday night I got an email to say that the sensor had been triggered. To speak to the client on Sunday night for them to then have the money on Tuesday. It’s phenomenal.”

High praise and perhaps the evidence that parametrics could have the legs to make more of a dent on the overall insurance conscious than blockchain. Because parametrics has these examples of its worth, that seem more material and real than blockchain, which comparatively is viewed as more intangible and abstract.

So will 2020 be the ‘Year of Parametrics’? I doubt the reality will be that simple as this is insurance we are talking about. But it should certainly gain momentum and could be poised to be The Next Big Thing by say, 2023.

Post Cartoon March 2020
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