Covid-19 has led to insurance companies ramping up the speed of their digital evolution, but relying on third-party services like a cloud provider creates new external risks that need insuring.
Parametrix Insurance was launched 18 months ago to protect businesses from the hidden costs of going offline. As well as attracting strong interest from brokers, the company also had a parametric product named after them in the Lloyd’s Lab.
Co-founder and CTO Neta Rozy joins Matthew on Episode 115 to discuss the company’s rapid growth and how they’re using technology to monitor thousands of digital services worldwide.
Talking points include:
- Tailoring solutions for large and small businesses
- Defining payouts without physical losses
- Why brokers love parametric products
- What to look for in potential partners
- Standing out and scaling at speed
If you like what you're hearing, please leave us a review on whichever platform you use, or contact Matthew Grant on LinkedIn.
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Parametric downtime insurance - Episode 115 highlights
Matthew: You are one of four co-founders at Parametrix Insurance. Why did you want to start the company?
Neta: Each of us had felt the pain of system or network downtime and seen the financial repercussions that it can bring about. Tamir founded the largest e-commerce business in Israel and knew first-hand what downtime losses look like. Jonathan and Ori previously co-founded start-ups that disrupted traditional spaces, so it was natural for us to move into a large and traditional industry like insurance.
Matthew: What is your target client base from an insurance perspective?
Neta: We've seen demand from very small customers and very large customers. It could be a small e-store with an online business to a large bank that's moving to the cloud. We know how to tailor our policy to fit both segments and everything in between. The granularity we have with our technology and data allows us to accommodate both large and small businesses.
Matthew: Selling into smaller companies is very different from large companies. Which ones are easier to get into?
Neta: I wouldn't say either are necessarily easier or harder. The smaller ones enjoy a more tight-knit product that is more off the shelf, where the larger ones like the product to be tailored to their needs. Larger businesses can retain more downtime on their balance sheet but their losses are also much bigger, so we know how to tailor and adjust the product to fit both sides of the scale.
Matthew: Is your coverage aimed at just downtime?. What about malware or denial of service or other failure of the operations?
Neta: It's any type of disruption to third-party services. Businesses build themselves on top of third-party applications for cloud computing, payment systems, internet and their web hosting.
Those are all critical services. If even one of them goes down, the business can go down with it, so we are hedging an external risk for businesses and allowing them to focus on internal risks.
Matthew: There's rarely a physical loss following downtime. How do you calculate the actual indemnity to pay out against?
Neta: We try and cover as much as possible. We want the product to be as transparent as it can be, and for the customer to know exactly what they're covered for and not covered for. We cover everything that causes third party services to go down, except for the usual exclusions that almost any insurance policy has like acts of war, or a huge company going bankrupt, like Amazon, for example.
We're creating a very simple product that covers more things than have been seen in the industry up until now, and we're able to do that because it's an objective event. There's no risk of fraud from the customer themselves because they cannot influence the risk of downtime.
Matthew: What about the payment? How do you define what the loss is going to be?
Neta: The compensation is pre-defined in the policy. We have an algorithm to assess how much a customer's loss will be in case of downtime, structured in a per hour loss.
We incorporate revenue losses, recovery expenses and SLA (Service Level Agreement) liabilities that a customer may have but pre-agree a number which the customer can input on. We might estimate their losses will be $10-20k per hour of downtime, then they could adjust that and we'd reflect it in the premium.
Matthew: Multiple providers going down would lead to a huge payout, but how is that measured? How do you have confidence that your capacity providers aren't exposed to those very large losses?
Neta: It comes from our background in technology and most of our company is R & D. Cloud and infrastructure providers are designed in a way where they have data centres physically spread around the world. Each one is completely remote to the other, with different services and different availability.
When we monitor their performance and availability, we get a granularity of understanding of each service, region and availability zone. When downtime occurs, not everything goes down at once. We usually see a region going down, or a service going down, and we know how to accommodate for that.
Matthew: Monitoring all those providers must give you good data on variability. Is that something you can make available to people choosing a cloud provider?
Neta: We've seen customers consult with us when they realise they have a high risk of downtime. We're able to help them lower that by suggesting a switch to a redundant region in a zone that doesn't go down as much. There's quite a natural diversification of risk if we can tap into that data and see the real-time performance of these services.
Matthew: Most of us are familiar with the three main providers, AWS, Azure and Google Cloud. How many more are out there that need reviewing?
Neta: Those three are probably the major cloud service providers, but there are many more as well as thousands of other IT services. Payment systems like PayPal and Stripe can go down as well, along with CRMs, ISPs and web hosting, and CDNs.
We monitor all of them, even before we have customers using them, for a couple of reasons. We collect data about performance and availability of services before we can insure them to understand their historical performance and to be able to price for them. Then, when a customer is on board, we need to know what their infrastructure looks like. Most of the time we can identify that but we need them to validate it.
Matthew: How do you get access to the information? Is it available publicly?
Neta: It's not available publicly and that's where our IP comes in. We've developed a system in-house to monitor the performance and availability of the services we insure. It informs us about regions where we don't have customers and helps during onboarding because customers don't need to install anything before they're liable for this type of coverage.
Matthew: A big challenge for any new company is getting to market. Are you relying on a broker network, or selling directly to end customers?
Neta: We have a great broker network. One of the first we started working with was Howden in Israel. They sell a lot of the cyber here in Israel, so it was a natural addition to their portfolio of products. Brokers love parametric insurance and not needing to have a claims process is fantastic for them.
Matthew: What would your advice be on getting engagement from brokers?
Neta: Because they saw a demand from customers for a product like ours, the moment we said 'this product does exist' they were very excited about it.
We also offer information they can't access anywhere else in the market about the performance of the services, which they can relay to their customers. They get access to a very interactive dashboard, so it's a great experience for brokers looking at the feedback we've had.
Matthew: How do customers demonstrate they've had a loss, so from a regulatory point of view it can be covered as insurance?
Neta: There needs to be a validation that the payout suits the loss that occurred during downtime, and we've had great success with our algorithm that estimates downtime per hour.
In addition to that, we also have a declaration of loss that the customer needs to fill out. Each interruption will cause a loss of money, so they're able to just sign a declaration and they're good to go.
Matthew: The company is only 18 months old. How did you succeed in getting up and running so quickly, and what advice can you share on how to scale rapidly?
Neta: My three other co-founders are experienced entrepreneurs and this is the second start-up for each of them. They've navigated traditional industries before which has been a big help.
New players in the field shouldn't be scared about entering traditional and regulated industries. Companies are looking for innovation and they're open to it. Communicate in a way that shows value upfront and bring something that doesn't necessarily exist in that industry. Developing technology in-house and having something no one else has access to makes a company very unique and approachable.
Matthew: How was your experience of the Lloyd's Lab? You had to work remotely rather than being in the building.
Neta: We were in touch with Lloyd's before we joined, and with the Product Innovation Facility as well, so it was natural for us to go into the Lloyds Lab. We visited them before Covid-19, but they did a fantastic job running the cohort remotely. They introduced us to key stakeholders in the industry and we'd recommended it to anyone looking at joining the Lloyd's Lab.
Matthew: The mentors are a big part of the programme. Who did you work with and what was their contribution?
Neta: Tokio Marine Kiln were great advocates for us and they're great partners now as well. RenaissanceRe is another company we had a great experience with. We co-created with them because they know the industry and their customers best. We were able to pull amazing insights and combine it with our technology to co-create the product.
Matthew: We know a lot of people who've had success within the Lloyd's Lab. Why were you so keen to work with them?
Neta: Lloyd's have always been innovators in insurance, so they're very open to it. They know how to weed out ideas that will have real demand with their customers. It's not easy starting a relationship with Lloyd's as it's such a huge market. After meeting the right people and learning how to navigate it, it's an amazing market to work with.
Matthew: How do you manage your aggregations? Are you collaborating with other modelling companies?
Neta: The aggregation is managed in-house, and we've developed an algorithm for a risk assessment that allows us to calculate and analyse the aggregation points.
Because we can see deep into the performance and availability of services, the algorithm shows on a worldwide map where the aggregate points are. Once we point them out, we know how to diversify them and manage that risk as we scale.
Matthew: What are you looking for from potential partners?
Neta: We see value in the technology, models and data that we've created, but we come from outside the insurance industry. Although we have amazing teams, the partners that we work with are the ones that know the industry best. We're looking for people we can collaborate and co-create with and get insights from. That's how we develop and learn to fit these products to the needs of customers.
Matthew: We're seeing more organisations that traditionally might have bought insurance, or relied on brokers to buy insurance, interested in what they can do themselves to blend the insurance with risk management. Is that something you're coming across?
Neta: With Covid-19, we've seen an extremely fast acceleration towards digitisation. Businesses have realised that they have to become digital very quickly, and there is a new and emerging risk from that.
Companies need to make sure they are insured for potential losses if they move to the cloud, for example. We've seen great traction from that, and we can help businesses make that switch without creating new external risks for themselves.
Matthew: You're also prepared to offer something for free to potential clients. Can you explain what that is?
Neta: Absolutely. Anyone interested in what we can offer can get in touch through our website. We'd be very happy to demo our technology or have them fill out an online form so we can pre-assess their potential risk.
Continuing Professional Development - Learning Objectives
InsTech London is accredited by The Chartered Insurance Institute (CII). By listening to an InsTech London podcast, or reading the accompanying transcript, you can claim up to 0.5 CPD hours towards the CII member CPD scheme.
- Claim 0.5 hours for listening to Episode 115 of the InsTech London Podcast