Parametric insurance: Expanding the toolbox for covering risk
Alex Kaplan, executive vice president for alternative risk at Amwins Group, discusses how parametric insurance differs from traditional insurance and the benefits it provides to policyholders.
Insurance is an extremely versatile and valuable risk management tool for homeowners, drivers, commercial enterprises, and others. From property, life, health and cyber insurance to commercial general liability, flood, earthquake coverage and more, there is insurance for just about every risk one could imagine.
Just as risks continue to expand and evolve, so does the coverage available to mitigate them. Parametric insurance is a relatively new type of coverage and differs somewhat from traditional insurance in terms of how it is triggered and how quickly it pays. Alex Kaplan, executive vice president for alternative risk with Amwins Group, discusses how parametric insurance works, the coverage gaps it can bridge, and the benefits for policyholders and insurers.
Parametric insurance is triggered by predetermined criteria based on an index of the physical or environmental characteristics of a particular risk, such as a specific magnitude on the Richter scale for an earthquake or the wind speed or water levels for hurricane coverage. Kaplan says insurers use real-time data to activate the policies, which can pay more quickly than traditional options. “They usually pay claims in under 30 days, but the fastest we’ve paid one was in four hours.” Paying a claim quickly gives the policyholder flexibility in how the proceeds can be used following a loss.
“It’s a multi-party conversation and the most important part is that everything is predefined, so it can be paid quickly,” explains Kaplan. “The predefined triggers remove the ambiguity of coverage. The hard work is done on the front end before the loss occurs.”
For more information on how parametric insurance can effectively address coverage gaps and increase recovery times for policyholders, listen to the podcast above or subscribe to Insurance Speak on Spotify, Apple Music or Libsyn.
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