Lloyd’s launches parametric policy with no named perils. Why it matters.
Lloyd’s announced this week that it developed a new parametric insurance policy for the hotel industry paying out based on a decline in revenues. In fact, they designed it as a no named perils product.
The insurance provides broad coverage against any kind of revenue impacting loss event. It will automatically pay out for any event that impacts a hotel’s expected revenue. They define an insured event as “the difference between forecast and actual market trading data widely accepted by the hotel industry.”
It will be interesting to see if they, or others, expand this type of product to other industries. Think tourist venues, theaters, stadiums, casinos, airports, shopping malls, even restaurants and local stores.
Any business would want a parametric insurance product that pays out when something causes customers to stay away.
Why should a Carrier care?
This product is unique in that it is a no named perils policy and it is parametric. This will provide comfort to many businesses (particularly small businesses) who believe that insurance companies don’t want to pay a claim and will find a reason to exclude the claim. If this type of product quickly gains market appeal (from agents to clients), we would expect other carriers to follow suit.
The Bulls
- Being parametric will lower administrative costs
- Businesses will flock to this coverage
- It should improve broker and client experience
- This could potentially be a use case for Blockchain and Smart Contracts further reducing administrative costs and improving client experiences
The Bears
- Being “No” named perils will increase payouts
- Will they really pay out for anything?
- Difficult to assess baseline and price appropriately
- This is still a Lloyd’s product, and they haven’t been seen positively in the press recently
The Path Forward
As with all innovations and new products, Carriers should be aware of what competitors are doing. Being informed about new products will allow you a new lens from which to evaluate your current product portfolio for market fit.
Carriers should look at parametric insurance thru four lenses:
- Will this type of product create new value for you and your policy holders?
- If you don’t provide a similar product, will you lose market share?
- How this might destroy old paradigms and insurance products?
- How can this type of product help improve operational efficiency and customer experience?
Evaluating the upside and downside of any new product innovation is critical to positioning yourselves to better meet the changing needs of your agents and customers. Embrace and enjoy the journey!
About Insurtech Advisors
Insurtech Advisors is dedicated to helping regional insurance carriers plan for the future today. We help you identify and partner with Insurtechs. This enables you to thrive and continue to meet the needs of your members, employees, and independent agents.