Parametric Insurance & Blockchain: A new dimension to the ever young Insurance Industry

Srishti Sawla
Sep 4, 2018 · 4 min read

The core purpose for insurance has remained same over the years but new dimensions and innovations are transforming the Insurance industry.Unlike traditional insurance where assets are insured,Parametric Insurance insures parameters also known as indices.

Parametric insurance comes in role when a specific event occurs or a measurable condition is met- a flight delay,an earthquake,a certain hurricane wind speed,x many days of flood or drought and many more.

source — internet

There are a multitude of ways to design a parametric trigger for an insurance contract.The contingent nature of a parametric insurance contract, that it pays out only when defined parameters are recorded or experienced, makes the pay-out mechanism predictable and also rapid.

So, what is of the upmost importance, is an understanding of the conditions to be used as a trigger and how they relate to a potential financial or economic loss to the protection buyer. Once that is understood, a trigger can be designed that provides highly accurate protection, paying out just when the conditions occur that can cause losses, either insured or economic

Why do we need Parametric Insurance

One of the key business drivers in Insurance industries is faster claim payouts and parametric insurance can lead to no claims process and No other documentation is required for the claim to be settled.

This expedited process eliminates most intermediaries, reduces paperwork, can virtually eliminate claims investigations and, in general, increase efficiency and lower costs to the insurer.

Parametric Insurance and Blockchain Smart Contracts

source — internet

Parametric insurance and smart contracts seem made for each other. It’s not the only type of insurance that will benefit from blockchain technology, but it probably represents the lowest-hanging fruit.It uses data sources and algorithms for underwriting and claims, and it’s initiated by and paid to the policyholder based upon a set of specific parameters — hence, parametric along with a predetermined sum that forgoes the traditional claims process.Off-chain data sources (such as IoT device events) capture data on usage related to shared automobiles, homes, commercial spaces, etc. and offer on-demand utilization related policies. This gives rise to a whole new class of on-demand insurance products. Creating a no-touch, frictionless procedure can eliminate human error in the claims process and could potentially save insurers millions every year and produce a better customer experience. Blockchain and parametric insurance have limitless possibilities.”

Companies could profitably insure low-premium and low-payout events through no-fault parametric policies. Auto insurance payouts would be determined by sensors in cars that would assess damage to the car, driving patterns — including traffic violations — before the incident damage and various other factors. For homeowners, sensors could assess fire damage — and perhaps even the source and cause of the fire.

Examples of parametric insurance on the blockchain include — but are not limited to — the following:

  • Flight delay insurance: French insurance giant AXA is testing fizzy, flight delay insurance. When you purchase the insurance, it’s recorded on the Ethereum blockchain. “This smart contract is connected to global air traffic databases, so as soon as a delay of more than two hours is observed, compensation is triggered automatically,” AXA explains. Meanwhile, Etherisc Flight Delay has a product ready to launch that will cover both the business and consumer markets. For the former, it will cover losses of revenue, reputation, and profits; for consumers, it will cover unplanned travel expenses.
  • Crop insurance: Germany-based Etherisc is also developing a crop insurance solution to automatically make payments in cases of droughts or floods. Farmers in developing countries often lack access to insurance because of the low margins for insurers. “Blockchain can help to solve this issue, since insurance products for developing countries become profitable, if all processes can be automated,” explains a piece posted on Digital Insurance Agenda’s website an international insurance conference.

Life insurance: Blockchain technology could make sure beneficiaries get the life insurance payouts to which they are entitled. In the U.S. there is approximately $7.4 billion in unclaimed life insurance money, Dante Disparte the founder and CEO of Risk Cooperative writes in a piece in the Harvard Business Review. A blockchain-based registry could help address this challenge. Currently, because people live longer, policies mature, and family members have no idea where the paperwork is. They may have forgotten there’s even a policy. “A blockchain-based public ledger would enable the rightful claimants to these proceeds to receive their due, rather than having these unclaimed funds be sold in a secondary market or stagnate.” There’s no need to depend on a grieving beneficiary to file the claim. A smart contract could simply rely on “oracles” to monitor sources of death data. Once the death is confirmed, the payment is made.

I would end this blog post by concluding The ability to market and administer blockchain-based smart contract-enabled parametric insurance policies solely through internet-connected smartphones can aid in reaching underserved populations.

If you like this post feel free to clap!!!Happy Learning!!!

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