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Parametric insurance offers French farmers some drought relief

Cows at a feeder during a drought

(Reuters) — Hundreds of French farmers who signed up for specialist policies aimed at insuring against freak weather are getting swift payouts that could help them recover from heat waves and prolonged droughts that hit parts of the country.

The payments underline how parametric policies, which pay out when a preagreed event such as a hurricane of specific intensity occurs, are becoming a growth market for insurers in developed economies as global temperatures rise.

Temperature records tumbled during late July’s European heatwave, the second to hit Europe in a month, and climate specialists warn such bursts of heat may become more common as the planet warms up because of greenhouse gas emissions.

Drought warnings were already in place across swathes of France before a high pressure system sucked up a cauldron of hot air from the Sahara last month.

“This year, all the French farmers who signed a drought contract got a payout,” Gabriel Gross, chief executive of Paris-based insurance and reinsurance company Meteo Protect.

Parametric insurance debuted in the 1990s with a focus on catastrophic events such as earthquakes and hurricanes, typically in emerging markets. Increasingly, however, the reinsurance industry is applying the model to risks once deemed uninsurable, aided by advances in data science.

Swiss Re Ltd. this year launched a policy to insure wineries against wildfires, Munich Reinsurance Co. insures solar farms against a lack of sunlight, and Axa Climate insures U.S. car yards against hailstorms.

Axa Climate was created in 2015. It initially concentrated on low-income farmers in emerging economies like India, Mexico and Vietnam but is now active in 40 countries including the United States and Germany. The unit is posting double-digit growth with annual revenue of several dozens of millions of euros, its chief executive Antoine Denoix told Reuters.

“There is a huge gap in the coverage against weather risk in France,” Mr. Denoix said. “We have realized the model can work in rich countries.”

Traditional vs. new

In early 2019, dairy farmer Jean-Francois Pons insured 50 hectares of meadow against low rainfall through insurer Aviva PLC, which sells Meteo Protect policies.

If rainfall at a nearby weather station was below 50 millimeters between May 5 and June 20, he would receive €450 per hectare. Mr. Pons paid a premium of €3,200 ($3,545).

On June 21, Aviva called Mr. Pons to notify him the criteria for a payout were met. Within days the farmer collected €22,500.

“I was able to buy fodder for the cows immediately, at the right time, because with the drought fodder prices are rising fast,” he said.

France accounts for about 16% of all European Union farmland. Yet most French farmers are uninsured against weather hazards. 2019 was the first year Mr. Pons insured his land.

“Traditional insurers would evaluate damage with satellite photos and other means that are hard to follow. Then they pay you weeks or months later, leaving you with cashflow problems,” he said.

While the parametric model allows customers to receive their payouts swiftly, insurers save the man-hours and cost of assessing claims.

For uninsured dairy farmers in France, times are tough. About 2.5% of the herd has been culled as the lack of rain hurts yields and pushes fodder prices higher, said Vincent Brack, director of the National Federation of Milk Producers.

Payout through a government-funded insurance will take at least a year, he said.

Meteo Protect’s Mr. Gross said his firm was able to spread risk by selling insurance to other sectors that benefit from weather extremes but suffer in normal conditions — such as utilities.




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