Most farmers remain uninsured against the financial impact of adverse weather like floods and drought. As we can see from natural disasters in Queensland, there is a need for a crop insurance product with affordable insurance premiums and a prompt pay-out.
One sugar cane grower who was hit by Severe Tropical Cyclone Debbie spoke of his crop losses.
“My cane farm was directly in the path of this Category 4 system,” he said. “We had two sheds completely written-off with another shed and our main residence suffering more than 50% of damage. “We had insurance for the damage except the crop was uninsured.”
For the 2017 season, the grower lost 40 per cent of his production, and he lost 30 per cent in 2018 and 25 per cent in 2019.
The Drought and Climate Adaptation Program crop insurance project is focussed on the development of parametric solutions that can fill this insurance need. Parametric solutions are a type of insurance that covers the probability of a predefined event happening instead of actual loss incurred.
Parametric solutions provide an alternative, cost-effective mechanism for managing the financial impact of weather uncertainty like drought, excess rainfall and cyclones. These solutions respond to movements in a weather-denominated index (for example based on rainfall or temperature measures) or the occurrence of a predefined event that meets agreed criteria (e.g. a Category 3 cyclone passes through an agreed location).
Claims are made if the agreed trigger thresholds are met. The claim amount is calculated according to a pre-agreed scale of payment rather than by typical reference to actual loss or damage. The coverage is transparent and can be customised to each grower’s needs with no lengthy, expensive or intrusive loss adjustment process meaning that claims are paid promptly after the loss.
An online tool has been developed to help farmers see how a parametric cyclone product would have performed in the past for their location. The tool will show whether and when a chosen location would have received a claim payout and also provides likely premiums for various levels of cover using historical cyclone tracks including STC Debbie and Cyclone Yasi.
This crop insurance project is led by the Centre for Applied Climate Sciences, University of Southern Queensland with support from insurance brokerage firm, Willis Towers Watson and the Queensland Farmers’ Federation.