As climate change continues to alter the atmosphere and increase the severity and frequency of natural catastrophe events, insurers across the nation are considering new ways to improve their underwriting and claims operations. Excessive losses from these severe events have led them to adopt parametric insurance solutions.
Parametric insurance is an attractive tool because it sets specific triggering event parameters such as weather or geological measurements like storm wind speed, earthquake magnitude or inches of precipitation. The triggering event is then used to verify the damage instantly and adjust losses without adjusters or processing. This is particularly useful in natural hazard perils, where claims are tied to weather-related parameters. Rather than basing the payout on the damage, the payout is based on a more objective parameter agreed upon beforehand.
Here are three reasons why parametric insurance is the future of claims and underwriting management.
- Quick Payouts
An Accenture survey found that a key contributor to customer satisfaction is the speed of settlement, with 51% of respondents believing it to be extremely important and 44% believing it to be important.2 While state regulations vary on how much time an insurer has to respond to a claim, many claims often take more than 30 days to be settled. This leads to policyholders, especially after natural disaster strikes, becoming frustrated with the process.
Parametric insurance can provide a solution by helping process claims faster. By using predetermined and mutually agreed-upon metrics, insurance carriers can leverage data to verify claims immediately, adjust and then payout the agreed upon amount without any dispute or processing. The quick capital deployment also helps communities recover from natural disasters faster than ever before.
- Precision Claims
Because traditional insurance claims are handled by assessing damages after-the-fact, disputes between the policyholder and carrier over insurance coverage can arise. The carrier, in many cases, may payout more or less than what the policyholder was expecting.
With parametric insurance, policyholders and carriers can agree on predetermined triggers. This results in a specific payout guarantee and ensures carriers are not paying more than necessary while simultaneously getting policyholders the help they need as soon as possible.
- Comprehensive Coverage
Parametric insurance allows insurers to cover risks that were traditionally not included in the claim. This includes anything with a measurable objective parameter, such as demand surge during reconstruction, food spoilage, crop yields or stock market indices.
Parametric Insurance is Here and is the Future
This insurance tool is changing the game for carriers around the world — and will continue to do so moving forward. Parametric insurance offers precision, quick payouts and comprehensive coverage. Weather-related events are not coming to an end any time soon, and they often leave entire communities broken and in desperate need. The tools offered by parametric insurance can help to streamline payouts and get help to communities faster so they can start rebuilding sooner.
Click here to learn more about parametric insurance solutions from CoreLogic.
Sources:
[1] Business Insurance, Global disasters cost insurers $85 billion in 2018: Swiss Re , https://www.businessinsurance.com/article/20190410/NEWS06/912327796/Global-disasters-cost-insurers-$85-billion-in-2018-Swiss-Re#
[2] Accenture, The Digital Insurer Claims Customer Survey: Why claims service matters, https://www.accenture.com/t20150523t041505__w__/us-en/_acnmedia/accenture/conversion-assets/microsites/documents15/accenture-insurance-claims-survey-web.pdf
