Parametric Insurance within Agritech
Shouguang, known as the vegetable basket of north China, recently suffered a devastating flood that caused the evacuation of hundreds of farms. While flooding in Shouguang is not uncommon during the summer, even light flooding means farmers can only plant green beans and sesame, and might still wind up with only half a harvest.
Currently, rural communities across China are given cash pools to partially compensate farmers before loss assessments. However, parametric insurance products, determined according to an independently verifiable data source, such as average temperature or rainfall over a given period, can dramatically accelerate the settlement period for victims of natcat or meteorological losses.
Although the notion of parametric insurance is not new, the accuracy and availability of previously publicly held meteorological data has prompted the development of new parametric insurance products. Ping An has developed a ‘Digital Risk System’ to model the risk of disaster, warning, and loss reduction based on 60 years of natural catastrophe data. The system, although still awaiting regulatory approval, is designed to expedite payouts from months to a matter of days and combines a weather index product and a satellite-based parametric product, covering harm to lives and property as well as loss of income.
The product, protects farmers in 28 poor rural counties of the province against the financial consequences of floods, excessive rain, drought and low temperatures.
Finally, Guangdong province, one of China’s most important economic hubs, also stands in the path of seasonal tornado movements. A quick access to emergency funding after a natural disaster is particularly important for local enterprises and this involves the use of rainfall and wind speed indices to allow for faster payouts.
Through initiatives such as these, the ability to forewarn policy holders in addition to pricing natcat coverage based on location, size and construction quality of dwellings is creating an economic incentive for homeowners and SMEs to seek out property and agricultural insurance.