Parametric insurance can extend the climate safety net, and prepare us for an environmental crisis

An interview with Antoine Denoix, CEO of AXA Climate

You work primarily with the agricultural sector – what has been the impact of COVID-19?

In spite of the huge impact of the crisis, agriculture has continued operating because we need to continue producing food. Food waste has increased because of lower consumption in some areas as the industry had been affected by the drop in consumption and the shutdown of the food business. Thankfully, however, our customers in European cooperatives have not seen a great upheaval resulting from the crisis. That said, COVID has shone a light on the potential future crises that affect this vital sector while bringing the need to prepare for climate change, the next global challenge, to the fore. How can parametric insurance help in preparing for what you call the “next global challenge”?

At present, we estimate 90% of economic losses from natural disasters are uninsured – the equivalent of hundreds of billions of euros each year. This is where parametric insurance has an important role to play. This type of insurance is still a relatively new market as the first products were developed in the 2000s. It has taken time, but the market is now really progressing due to its merits: parametric insurance is quick, transparent and simple. Moreover, pay-outs are automatic since they are based on a defined underlying indicator which may be rainfall, wind speed or soil conditions. Increasingly, satellite images are being used to calculate pay-outs.

Recently, companies have begun to look in more detail at their exposure to climate risk. That has increased with COVID-19. Using parametric insurance, corporates can protect themselves against events that don’t affect them directly, but that may affect their suppliers if, for example, they are vulnerable to storms or tropical cyclones.

“We are able to protect millions of people who are vulnerable to climate change, but who, until now, had no access to insurance.”

What advantage is there in using satellite images?

Very high-resolution satellite images as well as physical data from weather stations are used to capture the real time event and trigger payment. Satellite technology brings us closer to the client, so we can assess their true losses. One illustration is the forest fire insurance we launched in 2018. Forest plantations frequently have fires however insurance often does not pay out. Satellite images allow to compare “before” and “after”, pixel by pixel triggering payment based on ground image assessment of the client’s real loss. This is a game-changer.

How much scope is there to work with the public sector in this area?

We have been working closely with the public sector, both on agriculture and on natural disasters. At the moment, we have insurance pools for the Gulf of Mexico, Africa and the Pacific amongst others. These insure against natural catastrophes such as storms, droughts and coastal surges, with money going mainly to lower-income groups. With these insurance pools, we are able to protect millions of people who are vulnerable to climate change, but who, until now, had no access to insurance.

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