Insurance is a profitable industry, but its benefits are felt largely by people at the top of the economic pyramid. Some companies are trying to change that by leveraging digital technology to reach underserved customers with risk management services. “Our industry needs to build public-private partnerships to educate unserved customer segments about the benefits and risks of insurance products,” Denis Duverne, Chairman of the Board for global insurer AXA, writes in a paper titled “Inclusive Insurance: Closing the Protection Gap for Emerging Customers,” released by the Center for Financial Inclusion at Accion and the Institute of International Finance. However, the industry has made a lot of progress recently in reaching these segments, Duverne continues. “Several leading insurers are increasingly focusing on serving this segment through various initiatives, including innovative new business models, investing in and collaborating with insurtech companies, and tailoring value propositions,” he says. Mobile phone penetration has unlocked many opportunities for insurers in this area. The paper notes that up to 100 different insurance products have been distributed in emerging markets, according to Accenture data. But there are several more emergent technologies that have greater promise. Chief among these is advanced data and analytics. “New data sources and analytical tools are changing risk models, machine learning applied to satellite imagery is changing agricultural and disaster insurance, and identity and onboarding solutions are lowering the cost of operations while providing more convenient on-demand service,” the paper says. “Combined with advanced analytics, such as artificial intelligence and machine learning, [data] will help the industry boost risk transparency, reduce the number of unknowns within risk models, expand insurability, and create novel insurance products and services.” The parametric opportunity One of those classes of products is parametric insurance, which pays out a set amount when a triggering event occurs. Another paper, “Parametric Insurance: Closing the protection gap,” from the law firm Clyde & Co., says that advances in sensor distribution and data analysis are making such a product more attractive.Insurers are “assessing how they can combine core industry strengths of data analysis and risk transfer with new opportunities facilitated by fourth industrial revolution technologies – including satellite and IoT data and blockchain-enabled smart contracts,” the paper says. For example, in Kenya, maize farmers received payments to cover losses from inadequate rainfall, through Agriculture and Climate Risk Enterprise Ltd. (ACRE). Once the triggering condition was met, farmers were notified of their payments on their mobile phone. Other private entities exploring parametric insurance is Duverne’s AXA. In 2014, the company began offering parametric insurance through its Corporate Solutions effort, for which it won an award for Emerging Risk Solution of the Year in December 2016 from the Federation of European Risk Management Associations. It officially launched a Global Parametrics unit in March 2017 with Tanguy Touffut as CEO. In announcing the launch, AXA said that satellite images and connected devices are giving it access to the data and trends it needs to insure populations. “The parametric approach offers a simple, accurate, transparent, and affordable insurance solution to clients worldwide. For instance, AXA can provide custom covers based on weather or vegetation indices, using high-resolution satellite data to measure soil moisture or plant development,” Touffut said. “Our aim is to keep working with large corporations and the public sector but also broaden our horizons with SMEs and individuals. Through sophisticated technology and access to new data, we will also develop new parametric solutions that go beyond weather risk.”
Historically underinsured communities in developing countries are now being increasingly served by insurance companies thanks to the spread of insurtech. Parametric insurance, which uses sensor distribution and data analysis to detect a triggering event for payout, is becoming more attractive to farmers in developing nations and prompted AXA to launch a Global Parametrics unit in March 2017. A paper by AXA, entitled "Parametric Insurance: Closing the protection gap" references the potential for AI, machine learning and advanced data analytics to "help the industry boost risk transparency", a key challenge for insurers looking to penetrate emerging markets.