Natural catastrophes propel parametric uptake
More Australian insureds are considering parametric insurance options to help address the increasing cost of traditional policies and hazards brought about by climate change, industry consulting firm Xceedance says.
Parametric adoption is not yet widespread but is offered by some insurers and specialist underwriting agencies in the Australian market, says Xceedance Australia Client Executive Martin Jones.
Climate change has helped pushed parametric policies to the fore, he says, as floods worsen and the cost of insurance rises, and insureds look for alternatives. Parametric insurance can fill some of the gaps and limitations of indemnity products, he says, and be used as a top-up for under-deductible losses, or operate as an excess-of-loss cover.
“Increased natural disasters and the advent of artificial intelligence and other technological advances is changing the nature of core insurance products,” Mr Jones said.
“The advantage of parametric insurance is that it lowers the expense ratio for insurers and speeds the claims disbursement process for policyholders.”
Parametric products are powered by advanced technology and based on an external index being triggered, with claims settled according to a pre-agreed scale. Natural catastrophes, such as earthquakes and floods, can be logged by smart sensors that collect and deliver data analytics to identify when pre-determined parameters are met, triggering insurance coverage.
Once the trigger threshold is reached, payment is made with no requirement for loss adjusters to attend. Parametric triggers might be a lack of rainfall over a specified period in agriculture, or storms of pre-determined wind speeds.
“No proof of actual loss is required,” Mr Jones said.
Specialist agencies offer parametric products for cyclones, floods, frost and hail, among other classes, and some insurers provide them as an adjunct to traditional covers, or to expand their market share into areas where traditional insurance is not readily available.
Mr Jones says parametric insurance may be a solution for crop growers, noting that in the agricultural sector vegetable crops and horticulture produce cannot be insured, some perils and specific growing regions are excluded, and insurers often limit crop values.
Descartes and Redicova are examples of underwriting agencies offering parametric cover in the Australian market.
Descartes Underwriting began offering parametric frost insurance to local farmers last year. Its Paris-based parent company was established to provide a data-driven, parametric alternative against climate and emerging risks. Descartes has expanded its parametric products to cover natural catastrophes, crop yield, bushfires, hail and more, using satellite imagery, radar or smart monitoring devices installed at insured properties and climate pattern data to individually price risks.
North Queensland-based Redicova provides a Lloyd’s-backed parametric wind insurance product triggered when the Bureau of Meteorology records a severe tropical cyclone at an insured location. Payment is made without requiring the insured to prove it suffered a loss.
MD Karen Hardy says Redicova is not designed to replace traditional insurance, such as home, business, strata or farm, but to complement it.
Domiciled in Bermuda, Xceedance has offices in Australia, the US, UK, Liechtenstein, Switzerland, Poland and India. It helps insurers launch new products, drive operations, implement intelligent technology, deploy advanced analytic capabilities and achieve business process optimisation.