Social
Severe weather and natural disasters are an unfortunate reality in Australia, with the insurance bill for storms and floods since January 2020 exceeding $12.3 billion (ICA, 2022). With nearly 788,000 claims lodged over the last three years, this means one in every 25 Australian adults has made an insurance claim due to extreme weather.
In the face of increasingly frequent and severe natural disasters in Australia, parametric insurance is a solution that pays out a predetermined amount of money when a specific event occurs, such as natural hazard losses from named cyclones, floods, bushfires, earthquakes, and even hailstorms.
There are several reasons why someone may choose to use a parametric insurance solution instead of traditional insurance. This article outlines some of the key benefits below.
Customisable coverage
Parametric insurance solutions can be customised to meet the specific needs of the insured person. For example, a business may want to insure against a specific weather event that is likely to impact its operations.
Faster payouts
Parametric insurance is triggered by a specific event, which means payouts can be made efficiently because it does not respond like normal risk transfer insurance where the payout is determined by the actual loss experienced by the insured. For parametric insurance, if the predetermined trigger is met (e.g., the amount of rainfall or strength of wind in a pre-defined area), the insured is generally paid within 30 days without the usual insurance assessment process to determine the loss or damage sustained. This is particularly relevant in the case of natural disasters, where traditional insurance claims can take weeks or months to process. For the insured, this means a settlement can be reached quickly and the business can get back on track sooner.
Effective risk management
Parametric insurance solutions can be used as part of a broader risk management strategy, helping businesses and individuals to mitigate the financial impact of specific events. For instance, if an insurer is not prepared to offer more cover for a risk location (e.g., flood limit is capped at $10,000,000), parametric insurance can act as a top-up or excess of loss.
Greater transparency
Parametric insurance solutions are often based on objective data, such as weather or seismic information, which can provide greater transparency for both the insured and the insurer. This can reduce disputes and help to ensure that claims are processed fairly and efficiently.
Swiss Re Corporate Solutions
A leading global reinsurer that offers a range of parametric insurance products in Australia, including coverage for natural catastrophes such as earthquakes, cyclones, and bushfires.
GCube: A specialty insurance provider that offers parametric insurance solutions for renewable energy projects, such as wind and solar farms. Their coverage is designed to protect against revenue loss due to weather events or other triggers.
Insurance Australia Group (IAG): A leading Australian insurer that offers a parametric insurance product called "Weather Shield”, which provides coverage for businesses against specific weather events such as heavy rain, strong winds, or extreme temperatures.
Lloyd's of London: A global insurance marketplace that provides a variety of parametric insurance solutions, including coverage for natural catastrophes, weather events, and other triggers.
Munich Re: A global reinsurer that offers parametric insurance solutions in Australia, including coverage for natural catastrophes and weather-related risks.
It's important to note that the availability and specifics of parametric insurance solutions may vary depending on the insurer and the specific product being offered. Please reach out directly or to a representative of Honan Insurance Group to assist with your specific needs.
National Client Manager
adam.richardson@honan.com.au
