Parametric Insurance is changing the landscape of Risk assessment in Insurance. Well, the question lies in how. We are living in a world which is characterized by climate change, geopolitical tensions, and macroeconomic instability. In this landscape, the need for an efficient and predictable risk mechanism attracts attention. Imagine, you are planning sky diving this September, pleasant, isn’t it? Well, to make your experience even more enjoyable, how about getting insured? That is one of the promises of Parametric Insurance. Let’s dive deeper into this!
Parametric Insurance Meaning
If you have successfully imagined skydiving and getting insured for it, then, you are close to understanding Parametric Insurance. This type of insurance defies the traditional insurance models. It is primarily an insurance model where there are pre-set conditions that will aid the policyholder in terms of any accidents during skydiving, travel disruptions, event cancellations, natural disasters, and more. This type of insurance product is increasingly being favored in vulnerable industries and more so in 2025.
A Strategic Shift in Risk Transfer
As there is an increasing demand for Parametric Insurance, there is a strategic shift in risk assessment which is being observed due to Parametric Insurance. The insurance model is quite different from the traditional indemnity-based insurance which requires the assessment of actual loss before claims are settled, as Parametric insurance operates on predefined trigger events.
The parametric insurance market generated approx. USD 12 billion in GWP in 2021 and is projected to reach approx. USD 29 billion by 2031,2 growing at a CAGR of approx. 10% from 2022 to 2031. Insurers are widely acknowledging the role of Parametric Insurance and the way it is aiding the end customers in getting risk coverage which was previously unexplored. The increasing demand for Parametric insurance calls for a fundamental shift towards accelerating the claims process, eliminating ambiguity, and reducing administrative burdens that position Parametric Insurance as the ideal tool for modern risk management.
What Parametric Insurance Offers?
Parametric Insurance addresses some of the crucial challenges in the volatile environment of the Insurance industry. Here’s what the Parametric Insurance offers:
Transparency
The pre-agreed parameters ensure that there are payout criteria that are unambiguous and also foster trust amongst the policyholders and insurers.
Flexibility
The Parametric insurance products are agile and can be tailored to cater to sector-specific risks from agricultural yield protection to energy price volatility and beyond.
Speed
In Parametric Insurance the claims are settled rapidly after the triggering event occurs and this significantly reduces the financial strain which is associated with prolonged indemnity assessments. For example, consider your flight delayed or canceled due to rough weather, in that case, you will be receiving a quick payout based on the weather data and this ensures quick recovery.
How is Technology Instrumental in Reinventing Parametric Insurance?
Technology is playing a pivotal role in transforming the landscape of Parametric Insurance. With Granular, Reliable, and Real-time data from various sources, the insurers will be gaining a competitive edge in enhancing their Risk management strategy and also enhance their product offering. This will be a triggering point for a revolution in insurance risk management. With this data explosion, the insurers will be getting a massive number of opportunities that will help them explore the new variables of recalibration and pave the way for reinvention of Parametric solutions that will cover a wide range of risk scenarios that were earlier uninsured or unrecognized.
How Digital Insurance Platforms Can Implement Parametric Insurance?
The current digital platforms can implement Parametric insurance efficiently and call for a more streamlined approach towards Parametric Insurance. If you are looking to implement Parametric Insurance in your existing system and bolster your technology architecture, then, here are some of the core features of the Parametric enabled digital insurance platform:
Transparent
The platform must offer transparent coverage norms so that they are easily comprehendible by non-legal people. They should be simple and easy enough to understand
Configurable
The digital platform must be configurable enough to handle multiple Parametric products that address the coverage for different perils and must be available for various regions.
Automation
The digital platforms for successfully implementing Parametric products must be based on incorporating a high amount of automation.
Flexibility
Not only does Parametric insurance cover a wide range of risk assessments, but also it has multiple steps, hence, the digital platform must be flexible enough to add multiple additional steps before the payments are made.
Real-Time
This is another core feature of the digital platform which is capturing real-time data. Since Parametric insurance covers risk factors beyond natural calamities, the platforms must capture risk occurrence, and the resulting processing must be in real-time to get a better ROI on the product.
These are some of the core and important features of Parametric insurance-enabled digital insurance which includes technology capabilities for sourcing and processing data in all forms and covers a wide range of perils in multiple geographic locations. But there is more! Hop on to the next section to decode more!
What More Do Digital Platforms Need for Seamlessly Integrating Parametric Insurance?
The above are the core tenets that a capable digital platform needs to focus upon for incorporating Parametric Insurance. However, there are more than these that the digital platforms need to incorporate. In addition to raw data, one of the important aspects of this platform is the identification of indices upon which the Parametric product is based.
The digital platform’s underlying intelligent operations must be smart enough to be predictive and ensure guaranteed coverage based on the capture and trigger of events in real-time.
Additionally, the implementation of the core capabilities must be based on microservices along with appropriate APIs that will be exposed to front-end portals.
The promise of insurance technology will amplify the implementation of Parametric insurance seamlessly. With the support of the right technology platforms, insurers will be able to streamline, innovate and call for more enhanced risk management and tailor products for customers.
How iNube can Help?
iNube offers digital platforms that perfectly fit the increasing demand for the implementation of Parametric Insurance. Modular technology offers enhanced risk management giving insurers a competitive advantage to refine their product offering and more. Streamlining operations and enhancing customer experience in Parametric Insurance just got better with iNube.
Interested in knowing more?
Contact our insurance technology expert today!
