Descartes Underwriting (Descartes), a Paris-based firm that expanded into Australia in late 2021, has called for a rethink on flood coverage following the recent catastrophic flooding in Queensland and New South Wales (NSW).
Descartes offers parametric insurance against climate risk, including crop covers, natural catastrophes, non-damage business interruption, and renewable energy options globally. In addition, its coverage offers quick payouts once the firm identifies the trigger event, without requirement for loss adjusters and in-depth claims analysis.
With the flood insurance bill for the two Australian states rising rapidly towards $2 billion, the firm claimed that parametric insurance could benefit properties where traditional underwriters have reined in capacity and appetite due to a lack of data and modelling to underwrite the catastrophic risk accurately.
“Descartes uses non-traditional underwriting methods with state-of-the-art technology, including machine learning, real-time monitoring from satellite imagery, data from Internet of Things (IoT) devices installed at insured properties, and publicly available data on natural catastrophes, to individually price risks anywhere in the world,” said Ben Qin, head of North Asia & Australia at Descartes.
Unlike traditional indemnity insurance, parametric insurance provides pre-specified payouts based on trigger events, for example, specific rainfall levels or flood heights.
Noting the impacts of the recent catastrophic flooding in Queensland and NSW, Qin said the right combination of data, modelling, and product could help differentiate between uncommon and extremely rare events. He said that if the parameters are set accordingly, parametric insurance may be appropriate for properties currently underinsured or not insured.
“The Queensland-NSW flood damage demonstrates that it's time for brokers and their clients to rethink how they place catastrophe risks,” Qin said. “The lack of sound data and risk modelling means insurers take a knee-jerk reaction and withdraw availability of cover after large events. The same could happen now in flood-prone regions of Queensland and NSW.”
Descartes's calls for traditional insurance rethink align with the insurance industry's calls for making Australia more resilient to extreme weather.
Last month, the Insurance Council of Australia (ICA) published a policy platform for the Federal election to urge all Australian governments to double Federal funding to make at-risk homes and communities more resilient to floods, cyclones, and bushfires while saving governments and households at least $19 billion by 2050.
