Parametric Crop Insurance: Safeguarding the Agricultural Sector from Water Scarcity and Drought

As climate change intensifies, the risk of water scarcity increases, impacting a variety of industries, including food & agri businesses. 

Over the past decade, severe droughts have repeatedly hit North America, Australia, South America and Europe. Due to its geographic location, Australia in particular has always been prone to water scarcity. Major droughts from intense El Niño events in recent Australian history include 1982-83, the Millennium drought of 1997-2010 and 2017-2019. These events left devastating impacts on the agricultural industry, including crop failure, major livestock loss, drought, bushfires, dust storms, and land degradation. 

Challenges Faced by the Agricultural Industry

As temperatures continue to rise, many agri businesses and co-operatives are experiencing massive underinsurance. Agriculture represents the world’s largest industry, generating over $1.3 trillion dollars worth of food annually and crop and pasture occupying more than 50% of our land. Un- or under-insurance for drought and water scarcity events adds increasing pressure on crop growers, agribusinesses, and co-ops who need to cover financial exposures (e.g. lack of revenue and replanting costs) in uncertain times. 

Parametric Crop Insurance: A Resilient Solution for Agribusinesses

Parametric risk transfer solutions offer access to new sources of capacity globally and fill the gap left in the traditional market, ensuring efficient financial recovery from future droughts. These bespoke and customizable covers provide an alternative solution to all water-dependent industries and deliver transparent terms and swift liquidity when agribusinesses need them most. Descartes’ parametric products are client-customized and structured to meet specific needs, budget, risk appetite, and asset location(s). With a parametric crop insurance cover, agribusinesses can bounce back faster following a water scarcity event and prepare for the next season.

The agricultural sector finally gets a break with parametric insurance – a unique coverage solution providing fresh capacity for drought-prone areas. Download our case study to learn more.