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Mastercard: payment-led parametric insurance

InsTech’s Henry Gale speaks to Alice Glenister, Director, Insurance at Mastercard, about business continuity, payment-led parametric insurance and building greater resiliency in cities.

Member spotlight: Mastercard

Henry: How does Mastercard work with the insurance industry?

Alice: Mastercard believes in the power of partnership, so we collaborate with organisations across multiple sectors to scale global technologies and drive impact. We work with insurance partners to bring our combined expertise together to innovate, digitise and transform the insurance sector.

Whilst Mastercard is known primarily as a global payments company, we have other areas of expertise, and bring the full suite of our capabilities such as data insights, cyber security and multi-rail payment technologies into the insurance sector to enhance current insurance offerings.

Henry: What is your role and what does it involve?

Alice: Having worked as a parametric underwriter before joining Mastercard, I use my insurance background to advance Mastercard’s understanding of the sector and bring specific knowledge to our approach. Through that industry insight, we can ensure we collaborate with our insurance partners to design, create and then build new and exciting parametric solutions.

I am passionate about parametric insurance and the positive effect it can have on individuals, businesses and to cities. Parametric insurance is a great way to build resiliency and protect against risks that were previously deemed uninsurable under a traditional insurance policy. I am continually thinking of new ways to use Mastercard data insights and payment capabilities to bring new products to life that enhance and elevate current parametric insurance solutions.

Henry: What are the challenges of the claims process for business interruption insurance?

Alice: Existing business interruption insurance products do not always meet the needs of small to medium-sized enterprises (SMEs), especially if there is ambiguity about the cause and the extent of the interruption.

Insurers require detailed documentation to support a business interruption claim, which can be time-consuming and resource-intensive for the SME. In some instances, it can take over a year to pay a valid claim. This has a significant impact to cash flow. SMEs need access to money fast when their business is interrupted to continue operations and to meet financial obligations. Cash flow is vital to an SME; payment speed can be as valuable to the business owner as payment totality.

The complex loss adjustment process of traditional business interruption insurance means that insurers cannot respond quickly enough during an SME’s time of need, which can have a damaging impact to the business. This is why Mastercard has combined our capabilities with Exante to develop the Business Continuity Indicator (BCI), something we believe will make a real difference in scenarios like this.

Henry: What is Mastercard’s Business Continuity Indicator (BCI) and how does it work?

Alice: The Business Continuity Indicator provides an indication of business interruption based on the insights from Mastercard’s transactional data via a simple API call. The Mastercard report that powers the BCI breaks the world up into grid squares allowing us to understand transactional spend at a granular geographical level.

Mastercard can provide an independent community-based view of transactions, with insight into transactional activity across all merchants in any grid square and not just policyholders. The BCI aims to transform SMEs’ claims experience, so business owners can receive the resources they need to survive the unexpected interruption and therefore innovate out of that crisis.

Henry: How can insurers and TPAs use the Business Continuity Indicator?

Alice: Traditionally, loss adjustors working for insurers or TPAs would conduct days of desktop research and request detailed information from the SME to assess whether business interruption occurred. With the BCI, insurers or TPAs log onto an online dashboard and simply enter the business address and date of loss. This then generates a timeline of expected transactions vs actual transactions, as well as a heat map to show spending activity in the surrounding areas and on varying days. Loss adjustors and insurers can easily pinpoint business interruption events for SMEs reducing the time for evidence collection allowing for faster claim approval and therefore faster claim payment. It allows our partners to pay claims quickly and without friction which in turn lowers operational costs.

Henry: Can you give examples of how the Business Continuity Indicator would work in practice?

Alice: A rail strike is an example of an event that does not cause physical damage, but interrupts businesses in a geographic area because of reduced footfall. The Business Continuity Indicator would show that transactions were lower than expected for all businesses located near to those closed stations, allowing loss adjusters and insurers to easily identify interruption to those businesses and therefore validate the claim.

Another example could be an avian flu outbreak. When an outbreak occurs, it does not affect businesses based on geography, but based on sector; so chicken shops would experience disruption whilst coffee shops would not. The BCI analyses expected and actual spend across sectors, not just regions, to ensure both types of interruptions are detected.

Henry: How can Mastercard’s business continuity data be used for parametric business interruption insurance products?

Alice: The next step for the BCI will be to enable parametric non-damage business interruption (NDBI) insurance products. A parametric NDBI policy would use BCI data as a trigger, so that pay-outs to SMEs would be triggered automatically when the actual transactional activity is significantly lower than the expected for a predefined number of days. This could make SMEs more resilient and help reduce the trust gap between businesses and insurers, improving customer satisfaction and increased customer loyalty.

Henry: Parametric insurance is being used more widely, not just in business interruption insurance but in other areas such as catastrophe coverage and travel disruption. How is Mastercard currently involved in the parametric insurance market?

Alice: Having worked as a parametric underwriter before joining Mastercard, I know first-hand that the biggest selling point of parametric insurance policies is that claims can be paid quickly.

There are many benefits to receiving quick payments from a parametric insurance policy, both for policyholders and insurers. Quick payments reduce stress and uncertainty, improve recovery times, and ultimately lead to higher customer satisfaction and more efficient operations.

Mastercard’s payments solutions can help companies providing parametric insurance improve their claims experience. An example would be Mastercard’s ‘Parametric Cities’ initiatives to support vulnerable residents of cities after a disaster.

Henry: Tell me more about Mastercard’s parametric insurance initiatives for cities.

Alice: Mastercard has a long-standing focus on cities, improving the experiences within them and interactions residents have with their local geography or city, whatever the service, experience or need may be. We want to make cities more resilient by providing them with the mechanism to deliver money directly into the hands of vulnerable or impacted residents before, during or after a natural disaster. We are working with an insurance partner on this ‘Parametric Cities’ initiative.

Traditional disaster relief pay-outs, which often happen months or years after a natural disaster has occurred, are not sustainable as a sole means of recovery and leave those most vulnerable in urgent need when they need help the most. We are therefore putting our efforts into helping cities and insurers move towards a more responsive and innovative form of disaster relief pay-out.

Mastercard’s Parametric Cities proposition is a fast-paying solution that can be configured to meet the exact needs of any city. Our insurance partner works with the city to design the parametric policy, and Mastercard ensures fast and secure pay-out of funds to pre-identified vulnerable citizens once the policy is triggered. Instead of the city receiving a post-disaster cheque and wondering how they will distribute this to those impacted, our solution provides the last mile delivery of funds to those who need it most.

Henry: Are these pay-outs just for immediate relief or could they be used for mitigation activities to increase resilience?

Alice: They can be used as both because at times of disaster, cities and individuals need money fast. Mitigating and preventing events when they occur is much more effective than compensating months or even years later after very slow, lengthy, and expensive loss adjustment processes.

By pre-identifying individuals who will be most impacted by a disaster and by determining what should happen to help them in advance of the event, we can deliver aid more quickly and eliminate the need for in-the-moment decision making, at a time of stress and with limited data.

This could mean that households could use their funds to pay for alternative accommodation if it’s known that a natural disaster is likely to impact that location. Alternatively, the funds could be used to pay for transportation to take vulnerable residents to safe spaces if extreme weather events occur.

Henry: What sort of cities are these solutions most suited to?

Alice: Parametric solutions can help build resilience and support the most vulnerable in cities with high or low insurance penetration. The solution can be tailored to meet the exact needs of the city and can provide assistance to banked and unbanked populations. Any city that is exposed to natural disasters would benefit from the Parametric Cities initiative. We are initially exploring these solutions with cities in the US but plan to roll them out worldwide.

Henry: What companies is Mastercard working with on business continuity and parametric insurance?

Alice: Mastercard works exclusively with Exante, a technology company specialising in parametric insurance, on the Business Continuity Indicator. This collaborative partnership brings the best of both organisations together to launch a tool that will positively impact SMEs and insurers.

For our Parametric Cities initiative, we are advancing with our insurance partner and in conversation with city leaders and look forward to sharing more details in the future.

Henry: Why is Mastercard a corporate member of InsTech?

Alice: Mastercard believes in the power of collaboration and connection. No one individual or organisation has the answers to address any sector’s challenges, which is why the InsTech network is so important to us. We are looking to apply our capabilities to areas that matter the most to the insurance sector, which means we must stay close to those at the heart of the insurance community to remain aligned to its evolving needs. Personally, InsTech has a valuable and friendly network, and I always enjoy attending InsTech’s evening events where I meet new people and learn about different topics in more detail. I also like to read InsTech’s comprehensive reports, such as the 2022 parametric insurance report.

Henry: What sort of companies would Mastercard like to connect with?

Alice: I would like to connect with anyone who wants to discuss payment-led parametric insurance, business interruption and building resiliency in cities. I am always open for a conversation on these topics and would welcome invitations to connect on LinkedIn to discuss in more detail.

To find out more about the Business Continuity Indicator, please follow this link: https://www.exante.io/bci

To connect with Mastercard’s Insurance team please contact [email protected]

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