Parametrics: Insurance for weather perils

Headquartered in Paris, it has been writing parametric insurance globally since 2018 and its initial product was frost insurance for French wine producers. Big investments in planted land in New Zealand mean larger losses if frost hits, so growers need to talk to their insurance brokers about the potential for parametric cover to buffer them against costly crop failures.

Traditional insurance is expensive or unavailable for growers, so many bear the cost themselves when frost occurs and manage it via other risk management measures such as frost fans.

Parametric insurance, unlike traditional cover, provides pre-specified payouts based on trigger events, for example, when ground temperatures drop to specific levels. The insurer designs trigger points in partnership with brokers and their clients, customising them to suit locations, long-term regional climate trends, and growers’ anticipated losses. Growers considering parametric insurance need to plan early, to enable the insurer to underwrite the risk and lock in the parameters well before the season starts.

Parametrics uses non-traditional underwriting methods with state-of-the-art technology, including data from Internet of Things (IoT) devices installed at insured properties, combined with information on climate patterns, to individually price risks. Many growers already have weather stations with IoT capability and the insurer can analyse the risk of temperature fluctuations and cold spells during critical points in growing seasons.

Payments are made when pre-determined thresholds are triggered. For example, if the ground temperature drops to -2C, that could trigger a starting payment of say 25% of the indemnity limit, ranging up to 100% if the temperature reaches -4C.

With parametric insurance, there is no requirement for onsite loss adjusters to assess the cost of damaged crops, no policy excess amounts, and coverage can be targeted to specific locations on a grower’s property, given low-lying ground is potentially more susceptible to frost.

Although the product was designed with frost in mind – it can also apply to wind, excess rainfall and drought, hail cover is not yet available for New Zealand. It can also to apply as an alternative to traditional Earthquake insurer or used to reduce existing policy excess structures.

At present the pricing makes the product viable for larger crops and locations, but as things progress we’re hoping to work on providing an option for smaller growers – perhaps on a syndication basis.

Daniel Szegota is a Senior Broker at ICIB Ltd