Drought — Descartes
Group 8

Parametric Insurance Case Study: Drought Risk

Client Need: A cane grower in New South Wales, Australia, was severely impacted by drought in 2019. The drought created conditions that encouraged disease infestation in particular crop plots and reduced overall yield. 

Pain Point: Left with significant exposure, the client experienced AUD 3.5 million in damages. The lack of rainfall after the irrigation process also resulted in circumstances where half a million of input costs were wasted. Unfortunately, a majority of their financial losses were not covered under their indemnity policy ‘risk period’.

Our Solution: At their next renewal, the cane grower opted for a parametric cover that would provide financial protection despite climate volatility. This enabled the client to select a risk period specific to their needs, with a policy structure tailored accordingly. The client was concerned that they would not recover in the event of another loss year, as input costs are high and are heavily leveraged. With a parametric policy, the client only needs to pay the amount of the premium, rather than a larger sum for a bank loan to cover the loss if they generate no revenue in the next season.

The Result: Descartes’ approach leverages machine learning, satellite data, and advanced risk models to assess low precipitation levels across the client’s farm accurately. The fully-customized parametric cover fills the gap left in the traditional market and ensures efficient financial recovery from future droughts.