From French winemakers to the farmers of Australia, Descartes Underwriting is launching a parametric frost insurance product for local brokers and clients that it developed for French vineyards.
“Parametric frost insurance for French vineyards was the first product Descartes offered after the founders identified a market niche,” said Sydney based Ben Qin (pictured above), head of North Asia and Australia for Descartes.
He said that globally and in Australia, P&C markets “are in an extreme hardening state” due to a “perfect storm” of catastrophe losses, low investment returns, COVID-19 and the war in Ukraine.
“That’s creating some exits across several product areas, including agribusiness. This is where a viable alternative such as parametric insurance will thrive,” he said.
Qin said other insurance companies have tried parametric frost insurance products in the Australian market before, but not like this one.
“No previous efforts recognised the highly tailored nature of the product and the embedded farm-level data and technology required to successfully underwrite parametric frost cover,” he said.
Qin said this product is “certainly” the first time parametric frost insurance has been offered so broadly in Australia to a such a wide range of agribusinesses. The other novel feature, he said, is the product’s use of on-site weather data rather than just BoM (Bureau of Meteorology) data that may not be as localised.
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) is forecasting that the coming harvest of fruits, nuts and vegetables in Australia will be worth $13.5 billion - the most valuable harvest ever. Qin expects their frost product to have a range of customers in the agricultural sector.
“The appeal is broad, across broadacre and horticultural crops, fruit orchards, vegetable growers, nut farms, wineries – any growers whose crops are susceptible to frost damage,” he said.
Researchers at the universities of Adelaide and Wollongong have found that spring frost costs Australian grain growers alone $360 million in direct and indirect losses annually.
“Generally, Australia’s southernmost regions are more affected, but frost has impacted even on Queensland crops already this winter, given the Antarctic blasts that have hit much of Australia’s east coast,” said Qin.
He said the triggers that would determine a parametric frost payout are decided by each insured together with their broker and Descartes.
“They are related to ground temperatures but could vary according to where crops are planted. We can underwrite at granular levels for specific paddocks that may be on lower ground or in valleys and therefore more vulnerable,” he said.
A Descartes media release said payments can be made when “pre-determined thresholds are triggered, for example, if the ground temperature drops to -2ºC, that could trigger a starting payment of say 25% of the indemnity limit, ranging up to 100% if the temperature reaches -4ºC.”
The release said the agency uses “non-traditional underwriting methods with state-of-the-art technology,” devices installed at insured properties and information on climate patterns to individually price risks.
Qin said many agricultural producers actually already have weather stations with Internet of Things (IoT) capability that can be used with their product.
“If they don’t, the business owners will install IoT-enabled devices. Descartes can then analyse the risk of temperature fluctuations and cold spells during critical points in growing seasons,” he said.
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He said that one of the beauties of parametric cover is that it doesn’t need a visit from loss adjusters when a claim situation arises.
“Getting adjusters into remote, rural locations is not easy - but with parametric cover, it is simple. If a trigger point is reached, the agreed payout is made direct to the insured,” he said.
Qin said his company is the biggest global player in the parametric insurance market.
“We have the ability to integrate new data sources, including IoT, satellite imagery, stationary sensors, radar and third-party data and apply proprietary algorithms to unlock risk insights,” he said.
Descartes Underwriting, a Paris headquartered global agency founded in 2018, entered the Australian market late last year. The launch of the frost product in Australia follows a parametric flood insurance offering.
In 2021 a devastating freeze destroyed about one third of France’s grape harvest. Data from France’s agriculture ministry suggests that the wine produced from last year’s frost battered grapes could be the smallest volume for 50 years.
The insurance industry’s champagne drinkers needn’t be worried. Wine producers in the champagne region can legally use reserves from the previous year’s harvests to make up for any shortfalls.
