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Forestry firms protect carbon credits with parametric insurance

Australian plantation owners are buying parametric insurance to preserve the value of carbon credits as well as counter bushfire risk, Descartes Underwriting says.

Eligible timber projects are granted Australian government carbon credit units that can be sold in a secondary market or contracted to third parties such as energy or mining companies to offset their emissions.

Descartes, which wrote its first policy for an Australian forestry plantation client in 2020, began selling the carbon credit policies last year. While traditional insurers may cover loss of timber value if it is burnt, Descartes covers the financial loss of the carbon credits and/or the replacement value of the timber.

Offering capacity of up to $200 million, Descartes has built a substantial portfolio of timber, forestry and bushland regeneration clients in Australia, Head of North Asia & Australia Ben Qin says. The coverage offers quick payouts once triggers are met, with no requirement for loss adjusters or in-depth claims analysis. 

“Without insurance, a timber investment management organisation can lose its main income stream if there is no asset to generate carbon credits,” Mr Qin said.

“The policy enables clients to secure their Australian carbon credit unit inventories and maintain financial liquidity. If the hectares of burnt area and consequential losses exceed an agreed deductible, we pay up to the limit."

Loss detection is carried out by high resolution satellite imagery and Descartes continuously monitors plantations or regrowth projects. Fire losses across the risk period – usually 12 months or the bushfire season – are aggregated in calculating a client’s payout. 

Descartes writes parametric insurance for natural catastrophes, non-damage business interruptions, crops and renewable energy operations globally.

The Paris-headquartered company, which has offices in Australia, Singapore, Hong Kong, Japan, the US, Spain, Germany, Latin America and UK, has been writing parametric insurance internationally for timber investment management organisations for many years.