Parametric pandemic solution planned for 2021 attracts keen interest

US insurtech Machine Cover is experiencing plenty of interest in its work to create a parametric solution for pandemic insurance, Inder-Jeet Gujral, the company’s founder, told Intelligent Insurer.

The new product is set to come to market in 2021, providing a timely response to one of the biggest problems currently facing the re/insurance industry: business interruption (BI) due to COVID-19.

“The interest is very high—just a year ago people would have questioned the need for it; now all of a sudden everyone has suffered as a result of COVID-19 and is looking for a way of hedging that risk,” said Gujral.

The current issue facing the industry is that while COVID-19 caused none of the issues such as physical damage to premises or inventory that would typically give grounds for a BI claim, it certainly had a very significant impact on business.

“A key element for making this solution work was finding a proxy measure that would reliably indicate a decline in business.” Inder-Jeet Gujral, Machine Cover

Machine Cover’s parametric solution is specifically designed to pay out when a business experiences such a drop in trade. A key element for making this solution work was finding a proxy measure that would reliably indicate a decline in business.

“Initially we used satellite imagery as our proxy: to give a crude example, if 1,000 cars usually pass by your location on a normal day and suddenly only 130 cars pass by, that suggests something has gone wrong,” said Gujral.

“Of late, we have begun using a different proxy: the card-based transaction volume in businesses around you.

“Those businesses might depend on credit and debit card transactions for half of their revenue—and if they have collectively seen a drop of, say, 75 percent in their activities, then it is not unreasonable to conclude that something has gone wrong and that your business is suffering too.”

Another plus point is that the new product would pay out promptly based on the agreed trigger, without the need to enter into a lengthy claims process.

“The insurer knows instantly when it needs to pay out,” said Gujral. “It takes all the heartache out of the process and also creates cost savings for the insurer: the underwriting function goes away, the claims processing goes away, it’s automated front to back—it’s far less painful for the insurer and certainly far less painful for the policyholder.”

He added that the applications of this solution extend beyond pandemic insurance.

“It might just as easily be applicable to construction near your business, or a terror threat—the point being that your building, your inventory, are untouched but nevertheless through no fault of your own, you suffer a significant drop in revenue,” he explained.