When Severe Tropical Cyclone Narelle tore across Queensland, the Northern Territory and Western Australia in mid-March, traditional property insurers and their brokers were doing what they always do - waiting for the wind to drop, the roads to open and the loss adjusters to roll in. However, parametric carriers were already beyond the payments stage and their brokers were advising clients on the recovery process.
Those contrasting industry scenarios come as the data indicates cyclone impacts are becoming increasingly costly. Insurance Council of Australia (ICA) figures show insured losses from Ex-Tropical Cyclone Alfred in February last year and the North Queensland floods that followed topped $1.2 billion. Five-year extreme weather losses have hit $22.5 billion - a 67% jump on the prior five-year run - and ICA chief executive Andrew Hall has warned the annual cost to Australia is heading to $35.2 billion by 2050. Reinsurance is at 20-year highs and Australian carriers have absorbed cost increases of up to 30%, much of it passed on.
In that environment, a product that pays in days rather than months has stopped being exotic. For brokers serving cat-exposed regions, it is starting to look like core kit.
Read next: Cyclone coast: Why northern Australia is becoming a tougher proposition for marine hull cover
Sébastien Piguet (pictured right), co-founder and chief insurance officer at Descartes Underwriting - the Paris-headquartered parametric MGA that has now deployed more than $13 billion of capacity through brokers worldwide - was in Australia as Narelle bore down. He said the difference was being lived in real time.
"Before the tropical cyclone made landfall, as opposed to being only reactive after we are contacted by the client, we are proactive and we are able to offer coverage and to pay claims very quickly," Piguet said.
It is an experience that, in his telling, blindsides clients used to chasing assessors. Recalling a recent hurricane in Jamaica, Piguet said: "the client said it was the first time their insurer was contacting them to get their bank details because we wanted to pay the claims fast."
Parametric covers pay against an index - for cyclone, typically wind speed at the insured location and distance from the eye of the storm - rather than against an adjusted physical loss. Once the trigger is hit, the payout is pre-agreed. Regulation still requires the insured to confirm a loss has occurred, but Piguet says that is a one-page formality, not a months-long adjustment.
The product also responds without the Section 1 physical-damage trigger that gates business interruption on most property wordings. Lynn Roehrig (pictured left), Descartes' head of business development for Australia and New Zealand, said this is where the cover earns its keep for hospitality, local government and other regional clients in Narelle's path.
"Unlike traditional property policies that require a Section 1 trigger - physical damage - our policy can respond on the business interruption side," said Lynn Roehrig, Descartes’ head of business development in Australia and New Zealand. That can include shutdown costs ahead of an event, the increased cost of preparing a site, post-event marketing to bring tourists back to a region, and soft costs such as landscaping that traditional wordings sublimit hard.
Parametric is priced as a rate-on-line - a percentage of the limit purchased - not as a percentage of declared asset value the way a traditional property tower is built. That single structural difference reframes what brokers are actually selling: not replacement cost on a schedule of buildings, but an agreed sum of cash, on a defined timeline, against a defined trigger. The dials are location, trigger sensitivity and limit — and they are unusually transparent for a CFO to interrogate. As Piguet puts it, a client confident their facility can ride out a Category 4 storm can be quoted "a cover which is very affordable and which only triggers payouts when the event is very extreme" - while a hotel that needs cover firing on the first serious warning will pay materially more.
For brokers, the parametric pitch is increasingly being framed less as alternative cover and more as a tool to plug gaps the cat-exposed market keeps opening up - sublimits, deductible buy-downs, exclusions in flood-prone postcodes, and tightening capacity on bushfire risks after the LA fires.
The exposure sits in the data. Around 1.4 million Australian properties face some level of flood risk, with nearly 300,000 in the severe-to-extreme bracket, predominantly in NSW, Queensland and Victoria.
Listen to next: Parametrics and the industry struggle with nat cats
That is the market Descartes is selling into. The MGA writes more than 20 perils, with cyclone, flood, bushfire and non-damage business interruption among its biggest Australian use cases, and capacity of up to $200 million per risk.
Piguet is open about where the product does not play. Truly systemic risks like pandemics remain off the table. But for catastrophe-driven correlation events - cyclone, flood, wildfire, even cyber-driven grid failure - he argued parametric brings what the traditional market increasingly struggles to deliver: certainty, speed and capacity in the postcodes insurers have been pulling back from.
"We definitely bring good solutions for risk, for perils which can affect an entire region or at least a vast number of clients," Piguet said.
For brokers in north Queensland and the Top End who are still dealing with Narelle claims, that could be a proposition to bring to clients before the wind rises again.
