After recent surges in adverse weather events across the country, farmers and growers have seen harsh drops in production and profitability.
Because of this, insurance has become a vital aspect of operations if farms are to remain viable businesses in our changing climate – but are New Zealand options for insurance fit for purpose?
A relatively new, but increasingly popular insurance system being used in Australia and several other agricultural dominated countries familiar with unpredictable weather systems, is parametric insurance, or Weather Index Insurance (WII).
Instead of paying out a proportion of damage suffered after an event like traditional insurance, parametric insurance pays out based on an index, such as rainfall, measured at a local weather station or by satellite, rather than based on a consequence of weather, such as a farmer’s crop yield.
One of the companies front footing this new method of insurance in Australia by providing the software that underpins the online pricing of WII is Hillridge Technologies, and CEO Dave Schilling believes the technology is having a positive impact on Aussie agriculture.
“Drought is a big problem, but farmers worry about other extreme weather too – frost, heat stress, and too much rain at the wrong time, like just before harvest,” he said.
“Weather Index Insurance addresses four of these risks – low temperature; high temperature; excess rainfall; and deficit rainfall – [and pays] based on weather data from a nearby weather station.”
This method of insurance is not only beneficial to the insured, but because of the automation provided through companies like Hillridge’s technology, it saves insurers time and money.
The system removes the need for the insurance company to visit the farm to determine premiums or assess damages; premiums are calculated based on historical data for that area and if rainfall amount or temperatures are below or above a pre-specified threshold, then the insurance pays out.
Parametric insurance is currently being used in NZ for earthquake damage protection, paying out based on severity of earthquakes, but developments for weather-related parametric insurance are minimal.
Tim Grafton, CEO of the Insurance Council of New Zealand, told Farmers Weekly back in 2018 that the system could offer alternative insurance as climate change starts to bite NZ farmers and local authorities.
When referring to an example where this form of insurance was used for protection of mangroves, he stated “this could be here in NZ where you could have a mangrove area that protects shorelines insured or, in the case of rivers, a payment made on flooding for investment into further protection”.
After approaching Grafton for an updated comment recently, he told Farmers Weekly due to parametric insurance still typically not being offered in NZ, his views still stand.
When FMG, NZ’s largest rural insurer, was recently asked to provide comment on parametric insurance, rural propositions manager Karen Williams told Farmers Weekly that FMG had been looking into the system.
“At FMG we’re always exploring new options that could help farmers and growers better manage their risks, noting that Parametric Insurance is one of a number of options we could look at.”
Although they gave no indication that they are currently providing this form of insurance, or if and when they may be looking to introduce it in the future.