Why Protecting Carbon Credits Matters in a Warming World
As the climate crisis intensifies, carbon credits have emerged as a vital financial and environmental asset. Designed to incentivise emissions reductions and carbon sequestration, these credits—such as Australia’s ACCUs—hold real monetary value and play a central role in sustainability strategies for businesses, investors, and governments alike.
However, many of the natural assets that generate these credits—like forestry plantations and conservation areas—are increasingly threatened by extreme climate events, particularly wildfires and bushfires. When a fire devastates such a carbon sink, the corresponding carbon credits can be permanently lost or invalidated. Unlike physical infrastructure, carbon credits cannot be rebuilt—they vanish along with the biomass they represent.
Despite this financial exposure, traditional insurance has largely failed to adapt. Carbon credit losses in Australia are rarely covered, leaving project owners, timber investment firms, and ESG funds exposed to unmitigated risk.
This is where parametric insurance comes in. By using satellite data and pre-agreed triggers, parametric cover offers fast, transparent, and tailored protection—safeguarding not just forests and crops, but also the emerging carbon economy that depends on them.
Why Wildfire Risk Demands a Different Approach
Australia’s wildfire seasons have become longer, more intense, and increasingly unpredictable. Since the 2019–2020 “Black Summer,” which destroyed over 24 million hectares, traditional insurance markets have struggled to adapt.
Risk managers and brokers in forestry, timber investment, and agriculture now routinely face:
- Reduced coverage availability
- Wildfire-specific exclusions
- Higher excesses and co-insurance requirements
- Delays in claim validation due to resource constraints
The challenge is not just loss protection—it’s cash flow continuity, asset valuation, and the protection of emerging asset classes like carbon credits, all of which are exposed to wildfire risk.
Parametric Insurance: A Practical Solution for Volatile Climate Risk
Parametric insurance doesn’t rely on post-loss damage assessments or cost estimation. Instead, it pays out when a predefined trigger is met—such as a certain number of hectares burnt, measured using high-resolution satellite data.
Key Benefits for Brokers and Clients
- Fast payouts: Weeks or even months saved versus traditional claims
- Lower administrative burden: No loss adjustment negotiations
- Predictable recovery: Agreed value per hectare, no surprises
- Objective assessment: Based on third-party satellite and AI modeling
- Scalability: Suitable for clients managing large plantations or portfolios
For brokers, this creates an opportunity to offer innovative, gap-filling solutions that build trust with clients and improve portfolio resilience.
How It Works: A Technical Walk-through
1. Shapefile Submission
The client provides a GIS-based shapefile (digital boundary map) of their asset—e.g., a forestry plantation or conservation zone tied to carbon credits.
2. Policy Structuring
Descartes customizes the insurance contract to:
- Cover specific asset types (timber, carbon units)
- Define an agreed value per hectare
- Determine coverage thresholds for minor vs. major events
3. Satellite Monitoring
Descartes deploys granular satellite imagery combined with AI-driven burn scar detection models to track the asset over the policy period. Imagery comes from private and public data providers, like Sentinel 2.
4. Multi-pass Damage Confirmation
Recognizing that fire damage may evolve over time, Descartes conducts follow-up satellite assessments to ensure delayed effects (e.g., heat-stressed trees that later perish) are captured.
5. Event Reporting & Certification
If a wildfire triggers the policy, an independent certification agent verifies the data and produces an official report detailing the burnt area. This transparent process gives clients and brokers audit-ready documentation.
6. Claims Settlement
Once verified, the payout is calculated automatically based on the agreed value per hectare and typically released within days.
Application Example: Forestry and Carbon Credits in NSW
A timber investment client in New South Wales had suffered consecutive fire seasons and faced high premiums and exclusions from traditional insurers. Their carbon credit investment—based on Australian Carbon Credit Units (ACCUs)—was left uninsured, despite its material financial value.
How Parametric Insurance Helped
- A custom policy was structured with per-hectare valuation for both timber loss and carbon credit impact.
- Satellite-based monitoring allowed accurate assessment across multiple fire events.
- The client received a detailed event report shortly after the fire, giving them early visibility into the expected payout—supporting both financial planning and regulatory compliance. The final payout was delivered promptly at the end of the risk period.
For brokers, this approach filled two gaps:
- The lack of coverage for non-timber financial losses, like ACCUs
- The need for rapid post-disaster capital inflow to maintain operations and reporting obligations
What Traditional Insurance Misses
Key Risk Area | Traditional Insurance | Parametric Insurance |
Timber loss | Covered, but often with delays or exclusions | Covered with fast payout based on area burnt |
Carbon credit loss | Rarely insured | Covered with custom valuation |
Damage verification | On-site adjusters (slow, limited availability during large events) | Satellite and AI modeling (immediate) |
Cost transparency | Variable, often unclear | Agreed in advance ($/ha) |
Post-event capital recovery | Weeks or months | Typically within days |
Multi-event exposure | May require separate assessments | Covered within policy season automatically |
Risk Management Benefits Beyond Payouts
Parametric solutions are more than just an insurance product—they’re a strategic risk management tool. For clients operating in climate-sensitive industries, they offer:
- Portfolio resilience: Protects both short-term cash flow and long-term asset value
- Board-level visibility: Transparent metrics, simplified reporting, and ESG alignment
- Data-driven planning: Historical satellite records can support forward-looking risk models
For brokers, this means moving beyond transactional coverage toward a more advisory relationship, providing value in underwriting, resilience planning, and client education.
Who Should Consider Parametric Cover?
Parametric wildfire insurance is ideal for:
✅ Forestry companies managing plantations across fire-prone regions
✅ Carbon credit investors, including TIMOs and ESG-focused funds
✅ Agribusinesses exposed to vegetation, crop, or biomass losses
✅ Pulp and paper companies facing increasing cost of coverage
✅ Brokers seeking innovative options to protect difficult-to-place risks
Bring a Parametric Option into Your Client Conversations
With 800,000 hectares already under cover across Australia and New Zealand, Descartes’ wildfire and carbon credit parametric solutions offer brokers and risk managers a tested, scalable model.
To learn more or request a tailored risk analysis, reach out to the Descartes team or download our product sheet.
