Embedded and parametric insurance are newer types that change how customers get coverage. They are exciting because they give consumers more options for coverage and make them easier to use and purchase. Program Business looks at how embedded and parametric insurance is evolving and what this means for insurance carriers and customers.
The proliferation of new digital products and artificial intelligence (AI) and machine learning (ML) programs is upending businesses and personal lives on all levels. And the insurance industry is seeking new ways to harness technology to meet its customers’ needs. Embedded and parametric insurance are two prime examples of such tech-based product development.
Evolution is taking the insurance world by storm. Embedded and parametric insurance solutions show how business is changing in fundamental ways for carriers. These coverages are transforming the industry, and recently, the global pandemic has further accelerated developments.
Today, embedded insurance policies are used in consumer devices to provide coverage for customers in new ways. For example, it can protect those who may not have access to traditional insurance products or who have preexisting conditions. An example of this exciting development is when policies are set to trigger payouts when sensors are embedded into user devices and specific indicators meet pre-determined thresholds.
How Embedded Insurance Benefits Insurance Carriers
- Increased Revenue: Through the convenience of embedding insurance directly into products and services, insurance carriers expand coverage to more consumers and grow revenue as the policy is included as part of a product or service rather than requiring the purchase of a separate policy.
- Improved Customer Experience: Embedded insurance will improve a buyer’s experience by making the process convenient and straightforward for customers to obtain coverage.
- Better Risk Management: Insurance companies understand that embedding insurance into products and services enhances their ability to manage risk and reduce losses. When their coverages are baked into the products and services, they can better assess their risks while offering clients desirable individually tailored coverages.
- Enriched Customer Loyalty: Positive experiences with the protection and services embedded insurance provides increases the loyalty of happy customers. Such experiences build brand loyalty and repeat business.
- Lower Costs: Embedded insurance eliminates the cost of individual underwriting while reducing expenses due to administrative processes. These efficiencies cut overhead and make offering their coverage cost-effective for insurance carriers.
Parametric Insurance Offers New Options for Carriers and Consumers
Parametric insurance has emerged as a viable extra layer of protection for people dealing with natural disasters. For example, parametric triggers are set at predetermined values that cover policyholders when an event occurs, such as an earthquake, windstorm, or severe weather front. In addition, the coverage provides immediate financial relief during difficult times without requiring extensive paperwork or lengthy searches for detailed information after a disaster.
Cutting-edge Coverages are Possible with Parametric Insurance
While parametric solutions are considered protection from natural disasters, they can also be used in everyday situations. For example, sensors could be utilized in fitness wearables to detect heart rate irregularities and automatically activate progress payments if those values exceed pre-determined levels.
In another use, parametric policies can cover ambulance fees related to incidents associated with sporting activities like skiing. Also, they can provide medical evacuation coverage and additional medical service fees above and beyond what you would get with regular health care plans.
These insurance innovations make them ideal solutions for customers looking for greater peace of mind in challenging times or simply seeking more customized options than typically packaged healthcare plans can provide.
How Parametric Insurance Benefits Insurance Carriers
The benefits of parametric insurance to insurance carriers are similar to those of embedded insurance. They include the following:
- Improved Efficiency: Because parametric insurance uses predetermined parameters, it becomes quicker and smoother for companies to process claims. These improvements have the twin positive effects of lower carrier costs while enhancing client experience overall.
- Enriched Risk Management: With underwriting policies using set parameters to issue policies, insurance carriers can better assess risk and provide more tailored coverage. This process can reduce the likelihood of losses and improve the overall risk management for the insurance carrier.
- Increased Revenue: When insurance companies offer parametric insurance products, they can sell coverage to a larger group of people and earn more income. That’s because parametric insurance is usually cheaper and more accessible than traditional insurance, which is a powerful attraction to more customers.
- Enhanced Customer Experience: The customer experience when purchasing parametric insurance is simple and convenient compared to obtaining a traditional insurance policy. Clients appreciate the ability to buy coverage online or through a broker without undergoing the traditional underwriting process.
- Improved Innovation: Invention and creation are behind the new technologies that make offering parametric insurance possible. And it is only because of these innovations that products like parametric insurance can change quickly to adapt to the changing needs of insurance customers.
Drawbacks to Pioneering Policies
For every action and innovation, there are consequences, which are sometimes negative. And as such, addressing the cons of both embedded and parametric insurance is appropriate.
Cons to Embedded Insurance
When insurance is embedded into a product’s cost, it minimizes insurance companies’ pricing control. Embedded policies offer consumers limited options for coverage. Insurance companies depend on the product or service provider to distribute the insurance coverage.
Cons to Parametric Insurance
Parametric insurance typically limits coverage to predetermined events, like an earthquake of a certain magnitude, which can leave policyholders with coverage gaps for unexpected events.
Because parametric insurance relies heavily on technology to underwrite policies and process claims, possible equipment failures or other issues can cause problems. For example, when insurance companies use technology and parameters to underwrite policies, they risk making the coverage they offer customers too simple, which is potentially problematic.
These Unique Coverages Fill Otherwise Unmet and Often Tricky Needs
In conclusion, both embedded and parametric insurance provide significant benefits to insurance carriers, including improved efficiency, better risk management, increased revenue, an improved customer experience, and heightened innovation. Even though parametric and embedded insurance have some drawbacks, they are both excellent choices for insurance companies and their agents that want to improve their bottom line and meet the changing needs of their customers.