When parametric insurance becomes a necessity to tackle climate change

While only 30% of French farmers are insured against climate risks, natural disasters caused by global warming are constantly increasing. More than ever, it is necessary to provide solutions which help to anticipate and react upstream to these hazards.

A woman holding wheat in a wheat crop
July 2021

Increase in climate disasters

The first half of 2021 has been particularly harsh for French farmers. Severely affected by frost in April, thousands of hectares of vineyards have been devastated. More recently, June has been punctuated by floods, thunderstorms and strong wind gusts. Some 24% of farmers affected by these weather events have suffered damage to some of their winter and spring crops.

Farmers are increasingly concerned about these types of events. Every year, they live with the uncertainty and anxiety of having their crops destroyed by natural disasters.

On a global level, the scenario is similar. The year 2020 was marked by some 15 major weather disasters, more than one per month. Between fires in the United States and Australia, storms in Europe and floods in Asia, these events have caused damage estimated at several hundred million euros.  

Parametric insurance, an alternative to tackle climate change

Among the solutions developed to enable farmers to strengthen their resilience in the face of climate change and the multiplication of devastating events, parametric insurance is one of the best solutions.

Indeed, this type of insurance is based on predefined climate indices, which are correlated with the insured's losses. A set of parameters is then defined beforehand alongside the farmer, namely:

  • Type of crop(s) to be covered
  • Coverage period
  • Area(s) to cover
  • Critical threshold
  • Amount of compensation

As soon as one of the thresholds is exceeded, compensation is automatically triggered. This procedure does not require the intervention of loss adjusters to assess crop losses.

Thanks to this type of insurance, farmers can anticipate climate hazards and their potential crop losses.

Combining traditional and parametric agricultural insurance

Compared to traditional insurance, parametric insurance is more transparent, faster and offers a more detailed analysis of the risk.

However, these two types of insurance remain complementary. While traditional agricultural insurance provides a comprehensive weather cover, parametric insurance can act as a supplement for risk management and anticipation, as well as for the delay in triggering compensation.

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