As the impact of climate change increases and the cost of insurance rises, parametric insurance expands options available to Australian insureds.
Martin Jones, Australia Client Executive for Xceedance, says while some insurers and specialist underwriting agencies offer parametric products in the Australian market, adoption is not yet widespread.
“A range of factors, including increased natural disasters and the advent of artificial intelligence and other technological advances, is changing the nature of core insurance products,” he says.
“Parametric products, powered by advanced technology and artificial intelligence, are based on an external index being triggered, so claims are settled according to a pre-agreed scale. Once the trigger threshold is reached, payment is made with no requirement for loss adjusters to attend. No proof of actual loss is required,” Mr Jones says.
Parametric insurance can fill some of the gaps and limitations of indemnity products and be used as a top-up for under-deductible losses or operate as an excess-of-loss cover.
Specialist agencies already 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.
“The advantage of parametric insurance is that it lowers the expense ratio for insurers and speeds the claims disbursement process for policyholders,” Mr Jones says.
“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.”
In the agricultural sector alone some crop types, like vegetables and horticulture produce, cannot be insured, some perils and specific growing regions are excluded, and insurers often limit crop values for insurance. Mr Jones says parametric insurance may be a solution for those growers.
Typical agriculture parametric triggers are a lack of rainfall over a specified period or storms of pre-determined wind speeds.
Mr Jones highlights two underwriting agencies that are among several offering parametric covers in the Australian market.
Descartes Underwriting began offering parametric frost insurance to Australian farmers in 2022. Its Paris-based parent company was initially established in 2018 to offer parametric insurance to winegrowers to ease the financial pain generated by the high and volatile cost of frost. Descartes has now expanded its parametric products to cover a broader range of perils.
Descartes uses non-traditional underwriting methods and state-of-the-art technology, including data from smart monitoring devices installed at insured properties, combined with information on climate patterns, to individually price risks.
North Queensland-based Redicova provides a Lloyd’s-backed parametric wind insurance product to protect vulnerable properties against the cost of damage from severe tropical cyclones.
The cover is triggered when the Bureau of Meteorology records a severe tropical cyclone at an insured location. Payment is made, regardless of whether the insured suffered a loss.
Redicova Managing Director Karen Hardy says: “Redicova is not designed to replace traditional insurance, such as home, business, strata or farm coverage, but to complement it.”
Xceedance helps insurers and underwriting agencies to optimise processes, streamline operations and leverage advanced technology to support growth and productivity and can partner with them to develop parametric products.
Media contact: Kate Tilley, Kate Tilley Journalism Pty Ltd
P: 07 3831 7500
Xceedance provides strategic operations support, technology, and data services to drive efficiencies for insurance organisations worldwide. The company helps insurers launch products, implement intelligent technology, deploy advanced analytics, and achieve business process optimisation. For more information, visit www.xceedance.com.