US insurtech develops parametric pandemic insurance to fill coverage gaps
Massachusetts-based insurtech Machine Cover is developing the first parametric-based pandemic insurance product designed to fill the gap in the currently available commercial insurance policies.
The company said that the COVID-19 crisis has revealed a "critical gap in insurance cover" after insurers stated that many business interruption (BI) policies do not cover medical pandemics.
Businesses will be able to purchase the parametric product as an add-on to their existing commercial policy. The policy will automatically pay out in circumstances where there is a very significant decline in economic activity. A number of defined events will trigger a payout. If the policy is triggered as a result of the agreed parametric measure, businesses will receive a prompt and automatic pay-out without the need to make a claim.
The product is expected to launch in the first quarter of 2021.
“Currently-available insurance products are not fit for purpose because they do not cover companies for unforeseen consequences such as unexpected shortfalls in revenues, the inability to trade, and the cost of letting go of members of staff,” said Machine Cover founder and CEO Inder-Jeet Gujral. “The inadequacy of BI policies has resulted in large numbers of businesses issuing lawsuits against their insurers to try to recover cash to which they believe they were entitled. In many cases, businesses have been unable to continue trading because the pandemic has resulted in shortfalls few could have foreseen.”
Gujral added: “Our product uses parametric triggers to determine when there is a significant drop in economic activity in a given area – it could be caused by a pandemic, a large factory closing, or major road-building activity, we don’t mind – and the policy-holder will be automatically paid an agreed amount.
“If something happens which is outside the control of a business owner, they get a quick, no-questions-asked payout to help their cashflow. This is exactly the type of coverage which countless thousands of businesses thought they had paid for when they bought their current BI policies before the coronavirus pandemic.”
