Parametric policies and the role of technologies

Parametric policies and the role of technologies, with reference to artificial intelligence and blockchain. The topic was addressed by Chiara Frigerio, associate professor atUniversità Cattolica in Milan and secretary general of Cetif, at a recent seminar organized byIvass, who was quick to point out how "technology, especially in these areas, is not a pure 'plug and play,'" but how "it is necessary to structure and also choose which technology is better than other solutions."

Yes, because technology "is not only useful for efficiency, but also for business scalability. We need to pay attention to this second point when we talk about catastrophe, agriculture, underinsurance, because it is certainly one of the tools that not only leads to lower costs, but also more easily ensures scalability even in very complex territories."

The operation of digital parametric policies is based on quality data for the company and the insured that determine risk and indemnity estimates at the underwriting stage. Identification of the target event, Frigerio pointed out, remains critical, and correlation of data, with different historicities, to reconstruct the value of the loss is crucial.

Regarding the oracle, the independent and external source that provides the information needed to verify the policy parameter, Frigerio reminded how it must be "auditable and certified," and "automatically queried by the policy issuance and management system (through Api, application programming interface)."

Frigerio then spoke about another technology: the blockchain, based on shared registers, distributed among nodes, simultaneously accessible, decentralized on a cryptographic basis from the point of view of architecture and capable of enabling the recording, validation, updating and archiving of cryptographically protected data, he explained. The recorded information is immutable, unalterable and verifiable by authorized parties, Frigerio pointed out. "It is a technology that allows different actors (which are not necessarily the oracle, the insured, the policyholder and the company, but can also be the Public) to certify certain transactions. Public-private platforms, for example, could benefit from integration technologies....."

Certification of the automatic execution of contracts is also provided by smart contracts, a computer program operating on technologies blockchain whose execution automatically binds the parties based on effects predefined by them.

Frigerio remarked on the fact that these technologies must be integrated within the entire process from underwriting (information entry, condition definition, policy issuance, event detection) to settlement (management and indemnification). He then spoke about some experiences involving, among others, Cetif,Ivass, some companies, banks and brokerage firms, from which it was possible to draw a picture regarding lessons learned: "policyholders (individuals and companies) are interested in parametric policies and appreciate their structure (even for individual guarantees); digital and technology are indispensable for the evolution of parametric policies; parametric policies need multiple technologies together; the cost of technology (and data) is not an invariant, right now it can be an obstacle; companies are still ill-prepared to build adequate and competitive products due to the persistence of strong underinsurance."

These, on the other hand, are the evolutionary thoughts made by Frigerio: "Strengthening is needed on the insurance education front; the future of parametric policies must be supported by sound innovation strategies and is strongly correlated with technological maturity; control in parametric policies must be exercised by design and on a continuous basis and requires the contribution of IT compliance; supporting public and private open data and start-ups for event and damage estimation is essential; and the use of reinsurance and public-private models is crucial at this stage."