While most for-hire vehicle (“FHV”) drivers have heard of insurance, they typically relate it to auto insurance or Workers’ Compensation insurance. Parametric insurance is a different type of insurance that most FHV drivers have never heard of. Most insurance involves an accident, a claims process, an adjustment process, and a payment process. All of these processes take time and time is money. When an accident occurs, FHV drivers don’t have the luxury of waiting out the claims and adjustment process. This is where parametric insurance comes in.
Parametric insurance is a risk transfer mechanism that is typically related to weather and other natural occurrences, such as earthquakes, storms, and floods. In other words, someone obtains coverage that says that in the event of an “incident” a set amount of money will be paid out. All that is needed is the trigger, such as an accident or an incident. Unlike a traditional insurance policy that involves filing a post-event claim with the subsequent investigation and adjustment, a parametric claim improves the claims process efficiency. Once the parameters of the policy have been met, the policy is automatically activated, and payment is dispersed in a simplified manner for payment of damages suffered
Parametric insurance can also be related to the risk that the protection buyer seeks to acquire coverage against. In the world of for-hire vehicle (“FHV”) owners and operators in NYC, parametric insurance can be provided to cover loss of earnings or even the cost of renting a licensed FHV for work after a driver is involved in an accident. Take the typical example. A FHV driver is involved in a work-related accident. If the driver was working, the driver would be entitled to Workers’ Compensation benefits from the Black Car Fund. Such benefits would include loss of earnings, but such payments would take time to obtain. While the FHV driver is waiting for their claim to be processed, it will take time to be paid by the Black Car Fund. In the interim, the driver has personal and work-related bills to pay and usually does not have the luxury of waiting to get paid for lost earnings from the Workers’ Compensation carrier. Parametric insurance can provide the driver with peace of mind that in the event of an accident and a loss of earnings the driver will be paid much faster by the carrier who provided the parametric coverage.
Take another example, a FHV driver is involved in a non-work related accident and their vehicle has to be repaired. If the driver caused the accident, no one is going to pay for the damage unless the driver has collision coverage, which is atypical. If the driver did not cause the accident, then the claim against the driver that caused the accident will take time to process. In the interim, the FHV driver is without a vehicle in which to operate in order to earn money to make a living and pay the bills. Procuring parametric insurance can provide the driver with peace of mind that in the event of an accident, the parametric insurance carrier will pay the driver enough to be able to rent another FHV while their vehicle is being repaired, thus decreasing the downtime of the driver and minimizing any out of pocket expenses.
With a parametric insurance contract, a party is buying a pre-defined amount of protection which will pay-out based on pre-defined terms. The pay-out terms are key here, with parametric insurance featuring a parametric trigger. Thus, a trigger mechanism defines when the contract is to pay-out to the protection buyer. This trigger is typically based on parameters directly related to the risk that the protection buyer seeks to acquire coverage against. In the FHV industry, the protection a FHV driver seeks to acquire coverage against includes an accident that causes a loss of earnings or an accident that causes property damage to your vehicle.
The simplistic nature of a parametric insurance contract is that it pays out when defined parameters are recorded or experienced. Also, the pay-out mechanism is predictable and rapid. Predictability of pay-out and speed of pay-out are vital, providing certainty that when certain conditions are met a financial payment will be made. For FHV drivers, parametric insurance is a viable alternative to traditional insurance, providing a way to secure protection against precisely the conditions that affect or threaten their businesses.
Parametric insurance in the FHV industry is a new class of on-demand insurance products. Creating a no-touch, frictionless procedure eliminates human error in the claims process and could potentially save FHV owners/operators tons of time and money by eliminating lost earnings and minimizing downtime. The faster payout process also creates not just better customer experience, but also faith in the insurance carrier providing the product. If you have questions or would like more information on parametric insurance in the NYC FHV market, please contact me at the following link: http://www.shankerlawfirm.com/questions.
In 2020, expect to see an increase in parametric solutions as the FHV industry continues to evolve and certain value propositions become tested and prove to be reliable and beneficial.
By: Steven J. Shanker, Esq.