Innovation is changing the way we think about business. Industries are being disrupted by game-changing new technologies that allow businesses to offer new products or do things in a different way, and the insurance sector is no different. New solutions and products, such as parametric insurance policies, are becoming available that can change the way insurance helps households, businesses, and communities bounce-back from earthquake events.
Parametric, or “event-based” insurance is a surprisingly simple solution to support Kiwis when facing a complex situation brought about by a disruptive earthquake.
Firstly, parametric insurance can help close the liquidity gap between the economic loss and the insured loss. While traditional insurance policies provide valuable protection for natural perils like earthquakes and weather-related events, they do not cover all economic losses tied to these types of catastrophes, which can mean high out-of-pocket expenses and deductibles for households and businesses in New Zealand. Your traditional policy seeks to indemnify you for damage and loss attaching to your house and/or contents up to an agreed sum-insured amount. This is important, but it does not extend to other economic costs that you may incur, such as quick funds to evacuate, loss of income, costs of independent professional advice, childcare, pet care, costs to support vulnerable members of your family, wellbeing support, and the increased cost of living due to demand surge inflation. Parametric insurance provides broader coverage for the customer and reduces the financial impact of the event by closing the liquidity gap between economic losses and the insured losses.
Secondly, parametric insurance pays fast after an event. As experienced during the Canterbury and Kaikoura earthquakes, the claims process under a traditional policy can be complex and often involves assessors, loss adjustors, engineers, and architects, lengthening the time it takes to settle and receive payment. In the event of a natural catastrophe such as an earthquake, the Earthquake Commission (EQC) also gets involved. Obviously, the challenge and complexity are exacerbated after a large disaster when insurers are dealing with thousands of claims at the same time.
Parametric insurance products do not payout based on the value of the loss, but rather pay a predefined amount based on a trigger event. The size of the pay-out is based on the scale of the event (i.e. a parameter), as opposed to a claims adjustment process. The main advantage of a parametric insurance policy is speed of payment which allows the customer to use the funds to meet urgent needs to support their recovery.
There are several positive attributes relating to parametric products including:
Fast payment. Parametric policies are automatically triggered by the occurrence of an event which enables fast payments, usually within days, to the policy holder. The claims management process is far simpler as the loss assessment process of traditional claims handling is largely removed and replaced by the triggering parameter.
Transparent process: Parametric insurance is substantially simpler than indemnity products. This is reflected in policy wording and transparency and makes it easier for customers to understand policy coverage. Parametric policies are easy to understand because they typically rely on a simple trigger event to activate the policy.
Unrestricted use of funds: Unlike traditional insurance policies that are linked to property or assets, parametric policies are more aligned to circumstance. In this way parametric policies are designed to cover a wider range of losses and expenses, in addition to, and beyond just property damage. This means that customers can spend the funds as they need to recover from an event.
Minimised conflict: For this to work well, parametric products need to be able to rely on independent (proprietary and non-proprietary) data to inform them about both the policy trigger and event verification. For example, Bounce Insurance relies on independent and trusted data feeds provided by GeoNet strong motion sensors around New Zealand for determining policy trigger and event verification.
As parametric policies do not cover the full value of a loss, they are not designed to replace traditional insurance. Instead, they fill gaps in existing cover by providing rapid financial support to help policy holders with unexpected costs and get back on their feet financially. In this way parametric insurance covers the additional expenses relating to an event with the remaining loss being accrued to the policy holder or their traditional insurer.
Simply put, when pulling together all these features, parametric insurance products are an innovative way to supporting and meeting the needs of the customer while at the same time satisfying regulatory expectations of good conduct. The niche nature of parametric product design ensures that products are fit for purpose, transparent, easy to understand, and meet customer needs.
Bounce provides parametric earthquake insurance that pays up to $50,000 right-away after a large earthquake. The Bounce policy supports individuals, households and small and medium sized businesses and was developed in collaboration with Munich Re Innovation with Lloyd’s of London underwriting 100% of the risk.
It is the first of its kind in New Zealand, and the Bounce product provides Kiwis with quick cash flow for those immediate and uncovered expenses following a large earthquake. Check out our explainer video for more information on our simplified claims process Bounce Insurance - Earthquake insurance that pays. Fast - YouTube.
The Bounce mission is to increase economic stimulus following an earthquake by getting more money flowing into our customer’s bank accounts and their respective communities.