Parametric drought insurance offers an innovative solution to protect corporations, governments and populations in the face of climate change
Parametric drought insurance has emerged as an innovative alternative solution to this growing risk in an increasingly hard market. Traditional insurance often falls short in covering drought risk, which causes extensive damage but is challenging to measure. While most natural disasters occur instantaneously, drought is a longer term phenomenon: it can take months or longer to develop and can last several seasons or multiple years.
Drought refers to a period when water supply is insufficient, usually caused by low precipitation over an extended period of time. An unprecedented sequence of droughts in regions across the globe in recent years shows that climate change combined with human activity are the main drivers behind this growing risk. Many regions in Europe faced extreme droughts over the past few years, with particularly intense periods from 2018 to 2020. In Latin America, food production has been heavily impacted due to ongoing drought, particularly affecting the most vulnerable populations. According to FAO and IPCC reports, food production is “extremely sensitive” to climate change, with food security threatened by rising temperatures and shifting precipitation patterns.
Prolonged droughts not only impact farmers with decreased agricultural yields, but also incur additional costs to other players in agriculture-related industries. Droughts currently drive €9 billion in economic losses per year across Europe and are projected to occur more frequently and intensely as the climate continues to warm. New insurance solutions, such as parametric insurance, are needed to better protect governments, companies and populations from drought risks.
Parametric insurance: filling traditional insurance gaps to cover drought exposure
Descartes’ parametric drought insurance fills the gaps left by the traditional insurance market through our data-driven approach and new generation of technologies. This type of cover can be used by any client in any industry operating in a drought prone part of the world.
Fill out the form to download the case study paper on drought risk trends in Europe, with focus on Germany and France, as well as Latin America. Delve into Descartes’ parametric insurance in action and see how we addressed some of our clients’ pain points where traditional insurance fell short.
