Australia’s unpredictable weather patterns are prompting insureds to turn to parametric insurance, says Ben Qin, Head of North Asia & Australia with Descartes Underwriting.
He says the repeated floods and massive rainstorms that have plagued much of the nation for three years are now likely to be followed by drier months, according to Bureau of Meteorology (BoM) forecasts.
However, climate change has created so much volatility that BoM forecasts and commercial catastrophe models are now less likely to be accurate.
“Having a category 5 cyclone, as Tropical Cyclone Ilsa was when it crossed the Western Australian coast on 13 April, so late in the season, demonstrates that Australia’s weather patterns are now renowned for their unpredictability. Despite nearing the end of the traditional cyclone season, the ocean waters are still warm,” Mr Qin says.
“Cyclones and floods still occur in drier El Niño weather patterns. Dry forecasts do not necessarily mean the country will be up in flames either.”
Mr Qin says the volatility means many traditional insurers are afraid to deploy capacity for weather-event perils and are reducing their appetite or leaving some markets.
“Models based on historical data are no longer reliable and insurers and reinsurers are nervous.”
Mr Qin says that is sparking greater interest in parametric insurance. “Some asset owners have no options, apart from self-insurance, because they cannot get traditional coverage, especially for wet perils. Instead, they are turning to parametric insurers like Descartes.
“Parametric insurance is an option available for many businesses where traditional underwriters have reined in capacity and appetite because of a lack of data and modelling to accurately underwrite catastrophe risks,” he says.
“Those asset owners are converting to parametric rather than just using it to supplement indemnity insurance because traditional cover is simply unavailable or inadequate.”
Mr Qin says buyers are becoming better educated and more sophisticated about insurance purchasing. “They’re getting on the front foot and seeking out ways to optimise their premium spend.
“Asset owners likely to be impacted by floods are becoming more aware of the need for mitigation measures and capital expenditure to protect their assets. They understand you need a mix of insurance, mitigation and resilience.”
Mr Qin says brokers need to be educated about parametric covers because clients are asking questions.
“Parametric insurance is here to stay and forms part of the new normal. Brokers need to embrace it to best advise their clients.”
Parametric insurance, unlike traditional indemnity insurance, provides pre-defined payouts based on events that trigger the policy, for example, specific rainfall or river level heights for flood cover.
Descartes works closely with brokers and their clients to design triggers, tailoring them to suit each insured situation and its existing mitigation measures.
Paris-based Descartes Underwriting was founded in 2018. It now has 12 offices globally. Australia and Singapore were launched in 2021, there are four offices across the United States, plus one each in Hong Kong, Spain, Germany, Latin America and the United Kingdom.
Descartes writes parametric insurance for natural catastrophes, non-damage business interruption, crops and renewable energy options globally. The coverage offers quick payouts once triggers are met, with no requirement for loss adjusters or in-depth claims analysis.
Descartes uses state-of-the-art technology, including data from satellite imagery and smart devices installed at insured locations, combined with information on climate patterns to individually price risks.
Released by: Kate Tilley, Descartes Underwriting Australia Communications Consultant
P: (07) 3831 7500