Traditionally, natural disaster insurance has been a fraught subject for farmers. In many instances, there are no relevant products available, and the ones that do exist are typically based on loss assessment.
If disaster strikes, a number of inspections and investigations need to be carried out and compensation paid after findings have been decided upon – frequently a months-long process. The need to pay employees and the other costs involved in running a farm can cause serious issues if the claim is not processed in a timely fashion, and paid to an adequate amount.
Fortunately, new research from Queensland is helping creating a new set of parametric insurance products that can aid farmers. To find out more, Insurance Business spoke to Ross Henry, project manager – natural disasters at Queensland Farmers’ Federation.
“We were quite lucky really,” says Henry. “We received some funding from the Queensland Government under a program called Drought and Climate Adaptation, which enabled us to bring together an insurance organisation, a farming body and a university research facility.”
Developed in conjunction with Willis Towers Watson and the University of South Queensland, this new initiative marks a considerable shift away from the way insurance policies around natural disasters have traditionally been devised. It’s aimed at moving away from the loss assessment model and to something easier for insurers and policyholders alike to understand.
“With parametric insurance, all of the factors are decided upfront in the writing of the policy. The index or the trigger point is defined in a certain weather event,” says Henry. “Once that’s triggered, the payout is made. No-one needs to go out on property and test it, which also speeds up the process. Generally parametric insurance is paid out within about 14 days.”
At the moment, the project is primarily focused on the natural disasters that plague Queensland. Cyclones and flooding are among the most notable risks, though drought has obviously played a significant role in recent years.
While Henry is open to expanding the project to cover other phenomena in the future, part of the reason for this focus is simply due to the quality of data available.
“We need things that we can base a solid index around, and generally that’s around climate and weather phenomena,” says Henry. “That can cover temperature, rainfall, lack of rainfall, wind speed, cyclones and dew points – anything with a long-term record of climate and weather data.”
With cyclone season now only around six to eight weeks away, Henry noted that it’s a key time for the organisation to reach out to farmers, and provide education on the benefits of insurance to protect their livelihood.
“Only around 2% of Australian farmers currently take up some kind of crop insurance,” he says. “On top of that, insurance isn’t necessarily well understood in the farming community, in part because there isn’t always a relevant product that can be offered to clients.”
Still, Henry remains optimistic that this insurance project can offer something significant to the farming community.
“If people want to get involved and see what natural disaster insurance would look like on their property, we’re encouraging them to get in contact with the project and we can help set them up accordingly,” he says.