In situations of risk such as tsunamis or earthquakes, or in other less dangerous but very common scenarios such as flight delays, parametric insurance is increasingly present because it is based on very specific variables.
In addition to its characteristic focus on parameters, it collects thousands of pieces of data to ensure that compensation is precise and effective in terms of quantity and is provided in the shortest possible time.
In 2018 more than 60 million people were affected by adverse weather, according to calculations from the United Nations Office for Disaster Risk Reduction. Where Europe is concerned, the main catastrophe risks are storms and flash floods. Here, the performance of these personalised policies that are fit for such disasters is crucial, given that the numbers of people affected are very large. That is why its largest market share focuses on earthquakes, hurricanes, droughts and other meteorological phenomena.
The independent consultant in risk management, Gregorio Belaunde, highlights that among its greatest advantages is that “whether the beneficiary receives money does not depend on an assessment of actual damage, but on the fact that the parameters agreed upon in the contract materialised”. As Belaunde notes, the main claimants of parametric insurance policies are states, because their features “make them perfectly adapted for macro coverage”.
Thanks to technology, these policies accurately calculate the compensation to be handed out – if the use of technologies such as big data is optimal, it is possible to calculate how many homes are affected following a volcanic eruption, or the cattle losses after a period of flooding.
By using this and other technologies, it is possible to assess damages by cross referencing data, speeding up the processing of information and accelerating payments, because experts no longer need to be involved in assessing the damage. Belaunde explains that some of the most important tools for performing effective calculations include the United States Geological Survey platform for earthquakes, and the National Oceanic and Atmospheric Administration for hydrometeorological phenomena.
With regard to flight delays, data from Eurocontrol, the European organisation that regulates air traffic, indicate that in 2018 delays in air traffic in Europe increased by 105% compared to the previous year, and it is expected that the figure will continue to increase in 2019.
In its report, Eurocontrol notes that most delays were due to lack of staff, climatic factors and strikes or disruptive phenomena. Although the agency works hand-in-hand with administrations and airlines to resolve these difficulties, delays are a reality and some companies already focus their strategy on offering custom insurance for situations like these.
In its adoption program, MAPFRE’s Insur_space, which analyses trends in the world of insurance, hosts the startup Flyzen. Through the use of artificial intelligence and big data, it builds integration with parametric systems to offer protection against flight delays. In an intuitive way, the company allows insurance to be paid out immediately after any flight that has been affected.
Parametric coverage is on the rise and its applications are very diverse, including the treatment of epidemics in developing countries and water shortages, among others.
However, the expert reminds us that before trusting fully in the use of technological applications, “it is essential that the information recorded is of high quality to reduce the uncertainty factor and bring down premiums,” he concludes.