QFF and partners, Uni SQ, Willis Towers Watson and CelsiusPro are developing parametric solutions to support the resilience of farmers to weather risks. The project, funded through the Australian Government Future Drought Fund Innovation Grant, investigates parametric insurance as a risk management tool to enhance yield potential and profitability.
A reflective thought piece was recently written by the authors of the project. An excerpt and link to the full article can be found below.
Heard of parametric insurance? We learnt a great deal about this interesting topic after catching up with Hub partners, Russell Mehmet from Willis Towers Watson (WTW) and Jonathan Barratt from CelsiusPro about a collaboration they are working on as part of the Australian Government Future Drought Fund Innovation Grants Program. If your production income is affected by weather, then this topic should be front of mind!
Words, definitions, and explanations that describe how a parametric index insurance contract or weather certificate can be used in agriculture can seem complicated. But essentially, parametric index insurance are insurance contracts that help recover production costs and protect production income so you can continue in your operations.
As Network Partners of the SQNNSW Hub, Queensland Farmers Federation (QFF), UniSQ, CelsiusPro and WTW have been exploring the use of parametric insurance options in agriculture. A current two year project funded through the Australian Government Future Drought Fund Innovation Grants Program is exploring ways to minimise income volatility during drought. Researching the appropriateness of various insurance structures in agriculture is a key aim of the project.
There are two types of insurance used in agriculture: indemnity and non-indemnity. Indemnity policies take the form of traditional insurance covers such as fire, storm and tempest, hail etc., for buildings, machinery and contents; often these are referred to as ‘Farm Pack’ insurance. These covers require proof of loss and a loss adjuster to value the claim. The process before a claim is paid can be lengthy, stressful and may not meet the immediate needs of the farmer when an adverse event has just occurred, and cash flow is critical.
Then, there are non-indemnity policies, such as parametric index insurance, which cover events that cause the losses. Rather than insuring the value of the machinery for example, the insurance covers the value associated with inputs or yield (the farmer chooses). The insurance is structured on the probability of an event occurring that causes damage. No proof of loss is required, and payouts are quick. The policies are bound by predetermined parameters (triggers and thresholds), all agreed up-front when you purchase the policy. If the parameters are met, the policy is triggered, and a payout is made. Claims are processed quickly, which means farmers have income in the immediate aftermath of an event to meet the challenges of re-establishing the farm’s income flow. These policies are further broken up into two subgroups that cover catastrophic events like cyclones, floods, droughts and yield-reducing events like frost, heat, and quality downgrades.
Keep reading the article on the UniSQ website here.