With over 58,000 insurance claims received following Cyclone Gabrielle, it was no wonder that it took some time for businesses and homeowners to have their claims settled.

According to the Insurance Council, delays were caused by assessors getting to some affected areas, along with a shortage of geo-tech specialists to make assessments, not to mention of course the sheer volume of calls and enquiries coming into insurers.

This led to a great deal of frustration, with many people in limbo until the traditional insurance processes were carried out.

It was also frustrating for those who didn’t have any damage to their insured assets but suffered as the result of damage to fields, paddocks, riverbanks, and the uninsured clean up to remove silt and other debris.

With climate change bringing more extreme weather events, insurers knew they had to look at how they could manage these situations better in the future.

Enter parametric insurance

Parametric insurance is a solution intended to provide immediate financial support when severe weather events occur, through a parametric insurance model.

This type of insurance has actually been in place for about 20 years; however, it is now more commonly available due to greater advances in data analytics. The need for it is also greater given the higher frequency of big weather events.

The name ‘parametric’ comes from the fact that a parameter is used to define the hazard threshold, which results in a payout being made.

How does parametric insurance work?

Rather than relying on typical loss assessment methods, such as submitting a claim for loss or damage to your property, this innovative approach employs predefined weather parameters to trigger compensation.

These parameters can be set around events such as storms, earthquakes, or other weather-related events.

The premium is based on defined criteria, such as the magnitude of an earthquake or the level of rainfall in a storm, and when the defined event occurs.

As an example, think about rainfall coming down into a watershed which is an area of land where all the water drains into a common outlet, like a stream, lake, or river. If that rainfall going into a watershed exceeds a certain level within a defined period, the policy will be triggered.

The insurance will then pay out based on the event and not in response to damage to insured assets. It can then provide coverage for traditionally uninsured property or financial loss.

With flooding being a particular issue in an area like Hawke’s Bay, excessive rainfall can be measured by satellite and, as the watersheds are mapped by AgGuard, they just need the co-ordinates for the location to be covered.

What does parametric insurance cover?

Here’s a brief summary of what the policy would encompass:

• The event, not the actual damage – and this is a big advantage.
• The policy responds with a cash payment, a few days after the trigger has been reached, direct to the client’s bank account. You do not have to do anything as the rainfall is measured by satellite.
• Because it isn’t a policy of reinstatement, there are no loss adjusters involved, no complicated claims processes, and virtually no documentation – it is like a cash injection when you need it most.
• You can use the payment for any purpose, such as:
  • Clean-up costs
  • Emergency diggers/site works
  • Lost sales, etc.

Is parametric insurance right for your business?

If you would like to find out if parametric insurance would work for you, please get in touch with ICIB Brokerweb at
insurance@icib.co.nz or 0800 644 444.

This year we are proud to be celebrating looking after Kiwis’ insurance needs for 50 years, so are well equipped to understand your requirements.