Every reputable insurance broker or agent wants to do well by their clients. For insurance professionals who work with agribusinesses that are exposed to the threat of frost events, parametric insurance offers a pragmatic way to help business owners protect their revenue stream.

Why Agribusiness Needs Robust Protection against Low Temperature and Freeze Risks

For agribusinesses, an unseasonably frosty morning isn't just a discomfort; but a potential catalyst for disaster. In May, Vermont was hit by a two-day frost that wreaked havoc on the state’s vineyards and orchards. The damage was such that the State of Vermont’s Agency of Agriculture Food and Markets website quoted Terence Bradshaw, associate professor at the University of Vermont’s  Extension Fruit Program as saying, “In my 25 years of working with fruit crops in Vermont, I have never seen frost or freeze damage this extensive. The widespread nature of this event is unprecedented.” 

Sadly, we are seeing more extreme weather events year- after-year.

Beyond the immediate damage to crops, low temperatures can compromise soil health which can impair the quality of crop yields for years into the future. In turn, diminished crop yields can lead to supply chain disruptions that negatively affect other other businesses.  

How Parametric Insurance Provides Tailored Low Temperature and Freeze Risk Solutions

Traditional insurance models often fail to deliver timely relief, due to their long claims processes. By contrast, parametric insurance responds promptly. Rather than indemnifying the actual loss, as traditional insurance does, parametric insurance covers the probability of a predefined event happening. This distinction allows it to cover risks that are typically underinsured or uninsured by traditional models.

Clear, predefined metrics trigger parametric insurance payouts, ensuring swift financial relief. In fact, while traditional indemnity claims can take months or even years to resolve – depending on the complexity of the loss – parametric insurance can provide payouts within a few weeks. 

Building a Comprehensive Risk Management Strategy with Parametric Insurance

For insurance agents and brokers who’re keen to walk their clients through the ins and outs of parametric insurance here is a step-by-step guide to help you talk to agribusinesses facing frost risks:

1. Assess Client's Current Coverage: Begin by reviewing your client's existing insurance portfolio. Identify any gaps or vulnerabilities, especially concerning freeze risks. This initial assessment provides a foundation for introducing parametric solutions.
2. Demystify Parametric Insurance: Before diving into policy specifics, educate your clients about the principles of parametric insurance. Note that it pays out when specific predefined parameters are met, and does not indemnify actual losses.
3. Customize Policies to Client Needs: Emphasize the customizable nature of parametric insurance. Tell your clients that you’d like to help them find a policy that fits their unique risk profile.
4. Determine Suitable Risk Indicators: Collaborate with your client to pinpoint the most pertinent risk triggers for their agribusiness. This could be specific temperature thresholds or consecutive frost days. Ensure these triggers are realistic and relevant.
5. Integrate Reliable Data Sources: Walk your clients through the process of selecting objective data sources – like satellite imagery – that can serve as triggers for a parametric policy. Articulate why objective data triggers should give one confidence in the policy.
6. Educational Workshops and Seminars: Organize sessions to ensure that all stakeholders, from farm managers to investors, comprehend the nuances of the parametric policy – i.e., its benefits and potential limitations.
7. Continuous Policy Review: The dynamic nature of agribusiness means that their risk profiles can and do change. Commit to periodic reviews of your client's risk management strategy and adjust their parametric coverage as needed.
8. Engage with Experts: The world of parametric insurance is evolving. Attend seminars, workshops, and industry events. Connect with thought leaders to make sure you're always equipped with the latest in best practices to advise your clients effectively.

As an insurance expert, it behooves you to thoroughly understand the advantages and drawbacks of parametric insurance so that you can provide your clients with the most well-rounded and cost-effective coverage options.

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