If the recent floods have left you pessimistic about the future of your insurance coverage, I wouldn’t blame you. Some analysts believe the damages caused by the floods will reach claim costs northwards of $3 billion, and, as I mentioned in my previous article, may bring upon the hardest insurance season yet.
But there is good news. Our clients are now able access coverage for all natural catastrophic perils, across all trade sectors and geographies, irrespective of whether they have received losses or not.
This is made possible through Parametric Insurance.
What is Parametric Insurance?
Essentially, Parametric Insurance is an index-based solution that works as a payment received by you should certain events, such as a natural disaster, occur.
Unlike traditional insurance solutions that will only pay you if losses occur, Parametric Insurance payouts are triggered by specific events, such as floods.
A simplified example of this is if there is a major flood event, your business could be entitled to X amount of dollars.
Parametric Insurance can be useful if your business is highly dependent on plant, products and equipment (for example, mines, car dealerships, tourism destinations, telecommunications providers, wineries, property developments, farms and hotels).
Parametric Insurance will give you peace of mind knowing that you’ll receive coverage should things turn for the worse.
How does Parametric Insurance work?
As an index-based solution, Parametric Insurance only provides coverage if certain events are met. These ‘events’ are based on a measurement agreed between you and the insurer.
For example, in the case of a flood, you can only receive your payout if the flood reaches a certain measurement of depth, or in the case of a cyclone, the cyclone has to fall from a maximum distance from your Insured location.
Thanks to constant improvements in technology and AI, the data used to determine events allows for more accurate pricing and bespoke solutions for clients.
What does Parametric Insurance cover?
As stated, Parametric Insurance provides coverage for all natural catastrophic perils, across all trade sectors and geographies.
For example, natural disasters and catastrophes could include:
- Floods
- Cyclones
- Hail
- Earthquakes
- Bushfires
- Wind/solar yield downtime
- Construction delays
- And more
Parametric Insurance can address key exposures faced from major weather events including:
- Property damage
- Material losses within direct combustion zones
- Power interruptions
- Plant and equipment damage
- Loss of supplies
- Business interruption
- Loss of tourism revenue
- Loss of carbon credit inventory
- Loss of tasting room and wine subscription (vineyards)
- Smoke taint
Parametric insurance: extra information
One thing to note is that Parametric Insurance is not designed to be a be-all and end-all policy. According to Business Insurance Australia, “Parametric solutions are not designed to be stand-alone insurance policies. Rather, they exist to fill protection gaps in more traditional insurance programs. For example, a client with very high deductibles or multiple exclusions on their policy may want to enhance their risk transfer with some parametric coverage.”
In other words, it may be worth discussing with your business insurance broker how extensive your current ‘traditional’ insurance policy is first, and expanding into Parametric Insurance once you encounter limitations to your risk.
Parametric Insurance is not designed to replace your existing policy, but instead be added to it for instances when you require further cover.
Get protection against future natural disasters
Parametric Insurance may be ideal for you if you’re seeking protection against natural perils, such as floods and cyclones, and can’t easily access the coverage you need via traditional solutions.
If you are interested in finding out more about Parametric Insurance, we highly recommend speaking to a qualified business insurance broker (such as us) to discuss the best options for your current situation.
This article was written by Tony Venning,
Managing Director at Crucial Insurance and Risk Advisors.
For further information or comment please email info@crucialinsurance.com.au.
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