Insurers are wary of writing cover when they don't understand the upper limit of a potential claim. Consumers are cautious about taking out a policy if they suspect an insurer won't pay out. This mutual uncertainty leads to under-insurance with poor consequences for both insurers and consumers.

Lloyd's of London has endorsed two new strategies that could help put an end to this. Two reports published by the Lloyd's market this week have highlighted the opportunities for both parametric cover and smart contracts to help tackle under-insurance. 

Both initiatives seek to simplify the insurance purchase and claims process by making outcomes more binary. For example, a flood insurance policy using smart contracts and parametric features can trigger a pre-determined payout when water rises to a certain level in a consumers' home.

Under these circumstances, the claims process is radically simplified. Loss adjustments expenses are reduced, the insurer understands their value at risk and the consumer is confident they will receive a payout. In markets characterised by mistrust, these technologies have the potential to expand cover.