The advantages of parametric insurance
For example, there are policies that cover food producers where demand for their produce is weather-sensitive, and providers of renewable energywhose output is reliant on weather conditions. In September 2017, both AXA and Chubb Europe launched parametric policies which automatically pay insureds a fixed sum if their flights are delayed by a certain amount of time. Other policies are available to those involved in logistics and hospitality, and parametric solutions can be used to provide speedy interim payments for business interruption. Parametric policies can also be offered at a microinsurance level; sold directly to the consumer via mobile technologies, or as an add-on to existing microfinance services. Pioneers in this field include AXA and also Allianz, which in 2015 provided microinsurance to 45 million people in eleven countries in Asia, Africa and Latin America, including some on a parametric basis. Some key benefits of parametric insurance are speed, certainty of payout and the ability to plan ahead. These traits are particularly useful in developing countries where it is far more effective to respond before a loss event has turned into a humanitarian and economic crisis, with lives and livelihoods at severe risk and a nation’s development potentially put back years. Because parametric payments do not require loss adjusting on the ground, payments can be made quickly to hard-to-reach insureds PARAMETRIC INSURANCE OFFERS SPEED AND CERTAINTY
in remote locations, often via online payment platforms or through mobile phone networks. Parametrics are also extremely useful where there are wide-ranging and hard to quantify losses, for example at the national scale. Reflecting this, to date, national and regional governments with shared exposures have led the way in using parametric insurance to distribute funds to member states in a risk pool. Some of the earliest proponents of parametric insurance were the Caribbean nations which came together after the devastation wreaked by Hurricane Ivan to create a regional risk pool against severe weather, now known as the Caribbean Catastrophic Risk Insurance Facility (CCRIF). The benefits of parametric insurance have been highlighted in CCRIF’s response to hurricanes Irma and Maria where the facility was able to pay out over USD 50 million to member countries such as Dominica, Antigua and Barbuda, and Turks and Caicos within 14 days. In contrast, it is estimated that relief funding from international development partners normally takes between four and 12 months to mobilise.
PREVENTION IS BETTER THAN CURE
The economic benefits of early intervention are clear. The UK’s Department for International Development estimates that it would have cost just USD 5 million to contain the 2014 Ebola outbreak when it was first detected in Guinea, potentially stopping the outbreak becoming a pandemic and saving thousands of lives.
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