Swiss Re Corporate Solutions issued the first climate-indexed parametric insurance in Brazil. The policy, issued to Agrícola Xingu, covers farms growing soybeans, maize and cotton in Mato Grosso, Minas Gerais and Bahia, each of which were hit by severe drought in the past year.
Climate-indexed insurance policies are suited for sectors where income and operating costs are directly impacted by unexpected climate variations. This type of coverage is particularly relevant for major agribusiness players affected by rain, wind, sun and temperature patterns as well as for renewable energy companies.
“Swiss Re Corporate Solutions, in conjunction with Xingu, developed a policy adapted to our areas of production to help mitigate the risk of productivity losses that may occasionally occur as a result of droughts,” says Sergio Della Libera, the Financial and Administrative Officer for Agrícola Xingu Brasil. "They gave us a solution."
Parametric insurance is based on pre-defined indexes for the occurrence of natural events. When the parametric index is reached or exceeded, the policy is activated. In the case of rainfall, one of the indicators is a pluviometric precipitation below a given index level agreed upon by the insurer and the insured. This policy, therefore, differs from conventional models based on the occurrence of an event.
José Cullen, Head Agro South America Swiss Re Corporate Solutions, explains, “This is not an off-the-shelf product. We sit down with the client and jointly establish the best parameters for the insurance. In this way, we can help companies to minimise any slump in their financial results caused by unforeseen climatic events.”
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