Mainstay Underwriting has launched a parametric insurance product for Australian car dealerships to cover hail damage costs. The offering involves measuring the actual size of hailstones to decide payout amounts.
“The trigger is the hailstone size,” said Adam Dalton (pictured), managing director of the Queensland based underwriting firm. “So anything from three centimetres above triggers the event and then we’ll make a cash payment through to the dealership.”
Dalton said hailstones less than three centimetres in size generally don’t cause damage to vehicles. He said using hailstone size to determine a parametric insurance payout is the norm in the United States and Europe but there are different measurement methods.
“The Hailios hail unit that we’re using is about one metre by one metre and 10 centimetres high and weighs about five kilos,” he said. The unit is installed directly on to the roof of car dealerships. The device is endorsed by Lloyd’s of London after being supported by the Lloyd’s Lab that specialises in pioneering and supporting new technology.
Late last year, Australia’s east coast experienced a series of storms with very large hailstones. According to the Bureau of Meteorology (BoM), an October event in North Queensland likely produced the biggest hailstones ever recorded in the country. BoM said some stones measured about 16cm in diameter.
“So when a hailstorm hits, we don’t send anybody out, we don’t look at the vehicles,” said Dalton. “We’re just aware of the number of vehicles that are there based on the sum insured that we’ve established with the broker,” he said.
The opportunity to launch the product, said Dalton, was a result of car dealerships facing very limited insurance options to cover hailstorms.
“The current capacity is limited and reducing. There’s only a couple of insurers that are offering coverage to dealerships and the limits that they’re providing are reducing,” said Dalton.
He said, year after year, the situation gets worse.
“So you might find a dealership needs maybe $8 million worth of cover outside and then next year, their insurer turns around says, ‘Guys, we’re really sorry but we can’t provide you $8 million anymore, so we’re going to reduce that down to six.’ That’s becoming more and more of a problem,” he said.
One advantage of a parametric hailstorm coverage product, he added, is the speed of the payouts. For a traditional insurance policy, a car dealership might start a claim for hail damage by calling their broker who contacts the insurance company.
“Then the insurer has to do the administrative claims side of things and send somebody out there to inspect the vehicles. Then each vehicle’s damage is assessed. So is it repairable? If so, what are the costs going to be? It’s a very time-consuming process,” said Dalton.
After the Hailios Hail unit detects the hailstorm event, Mainstay gets a notification. If the hailstones are larger than three centimetres in size the payout process starts.
“A cash EFT transfer is made direct to the policyholder within 22 business days, it can be sooner,” said Dalton.
“The benefit of that is that the dealership then has half a million dollars, or however much it is, in cash that’s been given to them. They can then take a view as to engaging with a repairer before any of their competitors have had their claims finalised,” he explained.
Dalton said at this stage this parametric hailstorm insurance is aimed at car dealerships.
“This is more for when you’ve got 100 vehicles in an open yard. We do have minimum premiums and it just wouldn’t work for a local Joe Blow,” he said.
However, he anticipates expanding the offering to other industries.
“There’s a lot of opportunities out there for hail. Once we get going with the dealerships then we’ll expand the product into other areas such as agricultural areas, vineyards, stone fruit, solar panels, all that sort of stuff,” he said.
He said one of the biggest challenges developing this product was working out the best way to install the Hailios device on the roofs of dealerships.
“Some of the dealerships are two or three storeys high and it’s incredibly difficult to get on to the roof,” said Dalton.
Rather than sending the devices to dealerships, Mainstay is now taking over responsibility for installation.
In October, Insurance Business put together a list of the top five most expensive natural disasters in Australia’s recent history. Sydney’s hailstorms in 1999 come in first place with the total losses from claims in today’s dollar value amounting to $5.8 billion.