New reports by insurance and reinsurance marketplace Lloyd’s of London has endorsed parametric insurance and smart contracts as a way to help re/insurers offer customers better products and services.
Lloyd’s acknowledged that parametric policies offer insurers more scope to design products for risks that could otherwise be uninsurable or underinsured.
Parametric policies are triggered once pre-agreed parameters are exceeded, and tend to be based on definitive information such as previous loss events and independently verified data.
Such policies are already fairly common in the alternative reinsurance space, and are leveraged by a number of large risk pooling schemes such as the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF APC) and the African Risk Capacity (ARC).
Lloyd’s also praised smart contracts as a way to increase efficiency and add value for customers.
It noted that contracts automated by computer code can reduce the time taken to get a policy to the customer and pay claims, in addition to speeding up processes such as risk placement, premium payment, warranty enforcement, and claims assessment and settlement.
“The Lloyd’s parametric products highlighted in the report demonstrate the value of combining the best underwriting and broking expertise in the Lloyd’s market with the latest technology to deliver outstanding products and services to our customers,” said Trevor Maynard, Lloyd’s Head of Innovation.
“While smart contracts are a nascent technology, they offer exciting potential to transform the customer experience and it’s something we are looking to develop at Lloyd’s,” he explained.
“These reports offer in-depth analysis of how insurers can use new technology and products to benefit their customers, and ultimately generate new business.”
Caroline Dunn, Lloyd’s Head of Class of Business, also commented: “Lloyd’s welcomes the underwriting of risks on a parametric basis for a diverse range of classes of business for a variety of customers, including re-insureds, as well as personal and commercial lines’ customers.”
“We have worked to provide Lloyd’s market participants with a thorough insight into the parametric insurance market,” Dunn added, “including legal considerations, design features and the applicability of parametric products within Lloyd’s.”