Parametric insurance market shake-up could benefit growers

Once only affordable for large corporate growers, parametric insurance is becoming more accessible to smaller growers as more players enter the market.

Parametric insurance pays claims based on event triggers and according to the agreed payout scale, unlike traditional indemnity insurance that compensates policyholders for assessed losses.

One of the latest companies to enter the market is north Queensland-based underwriting agency Redicova, which offers parametric wind insurance backed by Lloyd's.

The company pays an agreed lump sum that is triggered when the Bureau of Meteorology declares a severe tropical cyclone which passes over an insured's address.

With the Bureau predicting an above-average number of tropical cyclones for the November to April Australian tropical cyclone season, the cover can help businesses and households get back on their feet quickly after a cyclone.

Redicova pays 100pc if the client is in the path of very destructive winds and 30pc to those within a 5km buffer zone.

It's available for locations in northern Australia along the coastline and up to 300km inland in postcode zones between Carnarvon in WA to Bundaberg in Queensland, including the Northern Territory.

In the Atherton Tablelands, second generation family-owned Howe Farming Group grows bananas, avocados and coffee.

After having experienced a strong wind event on one of their banana farms last year, as well as cyclones in the past, the farmers are aware of the devastation these weather events can cause.

General manager Kim Mastin said parametric insurance could be beneficial to both small family farmers and larger farming enterprises.

"It would provide comfort around the very real possibility of enduring extreme financial or economic loss after a wind or cyclone event," Ms Mastin said.

"Having the insurance would be of great benefit in the recovery and following production losses, filling a gap in the current insurance market for many businesses across Northern Australia."

However, for Frank and Dianne Sciacca of Pacific Coast Eco Bananas at Boogan, the insurance may not be suitable for them.

"The sticking points for us are, a severe category rules out category one and two, and a less than category one can take out bunched banana trees," Ms Sciacca said.

"Also, cat one can have a 50km radius of damage.

"[For our circumstances], at approximately $900 a month to get back $100,000 is quite good, but we feel the eligibility to get that payout makes it not achievable for [our] bananas."

Living and working in Tully, 140km south of Cairns, Redicova managing director Karen Hardy said the time between an event and settlement could drag out for months or even years under the indemnity model, which prompted her to design a parametric product that paid claims fast.

"We pay within three business days of receiving a claim, no questions asked and we specialise in uninsurable risks like crops and economic loss," Ms Hardy said.

She said it was not designed to replace traditional insurance, but to complement it.