Descartes flags parametric as solution for flood-prone regions

Parametric insurance specialist Descartes Underwriting has called for a “rethink” in relation to how flood and other catastrophe risks should be placed in the wake of the latest flood disaster to hit the country.

Head of North Asia & Australia Ben Qin says parametric insurance is potentially an alternative to traditional risk protection offerings for communities living in areas that are prone to natural disasters.

He flagged the suggestion as it has once again emerged that a significant portion of residents and businesses affected by the floods in Queensland and NSW are not covered either because they cannot afford the premiums or can’t find an insurer offering flood.

“The Queensland/NSW flood damage demonstrates that it’s time for brokers and their clients to rethink how they place catastrophe risks,” Mr Qin said.

He says three years ago, after the bushfires, the London market and reinsurers re-examined the risk and removed bushfire capacity in the Australian market, something that may happen again following the latest floods.

“The lack of sound data and risk modelling means insurers take a knee-jerk reaction and withdraw availability of cover after large events,” Mr Qin said.

“That’s where parametric insurance can fill the gap. The value perception of the risk on the ground is different from the coverage available in the market.”

Parametric insurance, unlike traditional indemnity insurance, provides pre-specified payouts based on trigger events such as specific rainfall levels or flood heights.

Paris-based Descartes, which opened an office in Australia last year, says it designs payout triggers in partnership with brokers and their clients and then tailors them to suit each insured location and existing flood prevention measures.

Mr Qin says Descartes’ data scientists combine a variety of data sources to precisely assess and measure flood risk in near-real time at clients’ premises.

“The more data that is collected and analysed, the more accurate the probability statistics and the greater the ability to accurately price the risk,” he said.

“That enables the sustainability and longevity of insurance, and in turn increases the resilience of communities to natural disasters in catastrophe-prone areas.”

He told insuranceNEWS.com.au Descartes deals exclusively with intermediary channels in the commercial/wholesale space and that’s the market for its products in Australia.

“We currently have written a portfolio of Australian-based risks in parametric form through our broker partners however, given our only recent launch of an Australian office, we anticipate a significantly higher number of inquiries and take-up, including flood risks.”

He says the business has written many flood risks in Europe, Asia, and the US.

“We need to overcome the lack of education about and awareness of parametric insurance as an adjunct to or alternative from traditional cover to enable our nation to increase natural catastrophe coverage, including for floods,” Mr Qin said.

“We want to change brokers’ thinking so they understand the benefits of parametric insurance and how it operates.”