December 10, 2022

Parametric Insurance: The Benefits and How it Fits in with Embedded Insurance

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Here are 3 examples of parametric insurance and how it can enhance embedded insurance solutions.

When it comes to insurance, traditional policies can sometimes be complicated and difficult for customers to understand. That's where parametric insurance comes in.

Parametric insurance is a type of insurance that pays out a benefit based on the occurrence of a specific event, rather than the amount of damage or loss. This type of insurance is often less expensive and easier for customers to understand than traditional policies because it is based on predetermined parameters rather than individual claims. It can also provide faster payouts, which can be especially beneficial in the case of a natural disaster.

But what exactly is parametric insurance, and how does it work? Here are 3 examples of parametric insurance and how it can benefit policyholders:

  1. Parametric insurance for natural disasters. A parametric insurance policy for a natural disaster may pay out a predetermined amount if a certain level of earthquake activity is reached in a certain area, or if a hurricane reaches a certain category on the Saffir-Simpson scale. This can provide policyholders with faster payouts and peace of mind, knowing that they will receive some financial assistance in the event of a natural disaster.
  2. Parametric insurance for travel. A parametric insurance policy for travel can provide a predetermined payout if a flight is delayed or cancelled, or if a trip is interrupted due to illness or other unforeseen circumstances. This can provide financial protection for travelers and help cover additional expenses, such as hotel stays and meals.
  3. Parametric insurance for sports injuries. A parametric insurance policy for sports injuries can provide a predetermined payout if a professional athlete sustains a career-ending injury. This can provide financial security for the athlete and their family, and help cover lost income and medical expenses.

In addition to these examples, parametric insurance can also be a valuable addition to embedded insurance solutions. Embedded insurance is a type of insurance that is included as a part of another product or service. For example, a cell phone manufacturer may include insurance for damage or loss as part of the purchase of a new phone.

By including parametric insurance as an option in your embedded insurance solutions, you can provide your customers with even more comprehensive financial protection. For example, a parametric insurance policy for a natural disaster could be included as an embedded insurance option for a homeowner's insurance policy. In the event of a natural disaster, the parametric insurance would pay out a predetermined benefit, and the homeowner's insurance policy would cover any additional damages not covered by the parametric policy.

Parametric insurance is fairly new and valuable type of insurance that can provide policyholders with faster payouts, easier-to-understand coverage, and more comprehensive financial protection. And when it comes to embedded insurance solutions, parametric insurance can be a great way to enhance the value and convenience of your offering for customers.

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