Brokers must 'embrace parametric as part of the new normal'

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Insurance brokers need to be educated about parametric cover as Australia’s unpredictable weather patterns prompt insureds to seek out protection alternatives, Descartes Underwriting says.

Descartes writes parametric insurance for natural catastrophes, non-damage business interruption, crops and renewable energy options globally. It works closely with brokers and their clients to design parametric triggers, tailoring policies to suit each insured situation and existing mitigation measures.

Sydney-based Head of Australia & North Asia Ben Qin says Descartes broker clients are asking more questions about these parametric solutions after repeated floods.

“Brokers need to embrace it to best advise their clients,” Mr Qin said. “Parametric insurance is here to stay and forms part of the new normal.”

Parametric insurance provides pre-defined payouts based on events that trigger the policy, such as specific rainfall or river level heights for flood cover. The coverage offers quick payouts once triggers are met, with no requirement for loss adjusters or in-depth claims analysis.

Descartes uses data from satellite imagery and smart devices installed at insured locations, combined with information on climate patterns to individually price risks, and 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,” Mr Qin said. “They understand you need a mix of insurance, mitigation and resilience.”

Parametric solutions can fill the void as climate change makes traditional insurers wary of deploying capacity for weather-event perils, and reduce their appetite or leaving some markets. Parametric insurance is an option where traditional underwriters have reined in capacity and appetite because of a lack of data and modelling to accurately underwrite catastrophe risks, he says.

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Models based on historical data are no longer reliable and insurers and reinsurers are “nervous,” Mr Qin says, and 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. Asset owners are converting to parametric rather than just using it to supplement indemnity insurance because traditional cover is simply unavailable or inadequate.”

Paris-based Descartes was founded in 2018. Operations in Australia were launched in 2021, and it also has offices in Singapore, Hong Kong, Spain, Germany, Latin America, the UK, and four in the US.