Business Recovery 101 | How parametric insurance quickly covers extreme weather-related risks in Canada
Frost. Earthquake. Tropical heatwave. Storm surge. Forecasts for extreme weather risks are happening more and more frequently across Canada. Whether you live in Vancouver, Calgary, Toronto, Cambridge, Halifax, St. John’s or somewhere in between, you’ve likely noticed that property damaging weather events are on the rise.
Most Canadian economic sectors either are or will soon be impacted by climate risks. These risks come in many forms and can shut down a business for a day, week, month or more. Weather-related storm damage isn’t just happening in Canada, it’s happening around the world.
Why extreme weather-related risks are “the perfect storm” to disrupt supply chain management
Weather-related risks don’t strike just one industry or business. They strike entire communities and geographic areas at once. For example, freezing rain created slick road conditions on Highway 401. A semi-truck flipped and spilled a load of hot tar across the highway. A section of the 401 was shut down for nearly a day, disrupting a critical transportation link between Toronto and Montréal. Global News notes, “Police say the driver of the tractor-trailer was driving faster than she should have been for the weather conditions. The tractor-trailer hit the concrete median that splits the eastbound and westbound lanes.”1
Just one storm can easily disrupt the complex supply chain that ensures fresh produce and products are delivered to local grocery store shelves. This is why no business in Canada is immune to potential weather-related damage.
Extreme weather takes many forms. Across the country, Canadians are seeing record-breaking weather more frequently. 2019 snowfall in Toronto has already broken a record set eight decades ago. CBC noted that February 27, 2019, was “officially the snowiest Feb. 27 in Toronto since 1938.”2 Regardless of where you live, work or do business, extreme weather risks are a very real concern for every Canadian.
Parametric insurance is now available for Canadian weather-related risks
Essentially, parametric insurance is weather-related risk coverage. It is insurance that is specifically designed to address claims related to extreme weather risk damage. AXA Global Parametrics, an insurance and reinsurance broking company incorporated in France, is now making parametric insurance available to Canadian businesses.
Specifically, AXA Global Parametrics uses “technology to transfer your climate risk. AXA Global Parametrics is using satellite imagery, weather station and other data to build your climate resilience, creating customized parametric solutions based on over 40 weather parameters. Some examples include:
- Agriculture – coverage against low yield due to drought, excess rainfall or cyclones
- Food and Drink – coverage against decreased sales of cold drinks during a cool, rainy summer
- Construction – coverage against work delay costs due to extremely cold temperatures
- Retail – coverage against a drop in seasonal clothing sales (winter coats, bathing suits…) due to adverse weather
- Renewable Energy – coverage against a decrease in renewable energy production due to adverse weather (lack of wind or solar radiation)
- Gas and Energy – coverage against a decrease in energy demand due to a warm winter
- Tourism and Leisure – coverage against drop-in visitor numbers and subsequent lower food and beverage sales in theme parks due to extreme weather conditions (excess rainfall, cyclones…)
- Transportation – coverage against increased costs for airline companies due to cold temperatures and snow (aircraft de-icing)”3
As Canadian commercial insurance brokers, we at ALIGNED are constantly seeking new coverage solutions for businesses. With weather-related risks happening more frequently, new and innovative insurance products that respond to extreme weather events are on our radar. At ALIGNED Insurance, we are proud to deliver a better and different insurance experience to Canadian businesses.
Step by step | How to recover from an extreme weather-related event
Business leaders see value in getting commercial insurance for weather-related risks in place across Canada. This is because after a weather-related event damages a business property, it will be important to quickly activate recovery activities such as:
- Reporting your claim to activate the recovery process
- Immediately contacting your employees, business partners and suppliers
- Depending on how extreme the weather-related damage to your business is, bringing in experts to activate crisis and disaster recovery plans
- Responding to public concerns and complaints. If the public views your response to the extreme weather event as insufficient, slow or inappropriate, you may need to hire experts to activate a public relations campaign.
- Dipping into business resources to finance post-event recovery activities
These are just some of the reasons why comprehensive and seamless coverage for weather-related risks is so important for Canadian commercial operations.
How does parametric insurance for weather-related risks work?
Existing and ongoing extreme weather risk research is used to establish probability parameters for parametric insurance. Known parameters are used to benchmark general norms for geographic areas. Parameters can include temperature, rainfall, wind speed, crop yield as well as earthquake magnitude.
AXA Global Parametrics designed parametric insurance to specifically measure extreme weather risk exposures. This new form of insurance coverage is designed to deliver when you need it most after an extreme weather risk event damages your business property. Here’s how it responds:
- When climate events are outside of certain levels, parametric insurance is specifically designed to expedite claims payments quickly and transparently.
- When a parameter is below or above a set, level, you will receive the payment of a claim within a few days for a pre-defined amount and threshold.4
Canadian business properties are being damaged by extreme weather risks. Commercial businesses can get insurance for extreme weather-related risks. An ALIGNED Insurance broker can help you get parametric insurance for your business in Canada. We can also help you manage business risks across Canada. Talk to us to get your business aligned with parametric insurance options today.
Parametric Insurance Explained
Think outside the box and protect your company from weather-related risks with parametric insurance. This new commercial insurance solution is quickly gaining favour among businesses that wish to protect themselves from risks not covered by traditional business insurance. Keep reading to learn more about parametric risk and index-based insurance.
What is a parametric risk?
A parametric risk is sometimes referred to as a trigger or triggering event. Examples of parametric risks include environmental triggers like floods, tropical cyclones, hurricanes, earthquakes, or business-related triggers like foot traffic. Your parametric insurance coverage kicks in if the pre-defined trigger event parameters are met or exceeded. For example, for an environmental trigger like a flood, a predetermined parameter or index on the amount of precipitation would have been agreed to. Similarly, if the risk was an earthquake or cyclone, the parameter or index would be the magnitude or wind speed, respectively.
What is parametric insurance?
Parametric insurance, also known as index-based insurance, covers the probability of a predefined event occurring. This unique type of commercial insurance solution guarantees a payout to the policyholder after a qualifying event. Parametric insurance ultimately provides an opportunity for businesses to protect themselves against unpredictable, potentially catastrophic risks that traditional indemnity insurance does not cover.
What businesses require parametric insurance?
Since parametric insurance can protect your business from a wide range of severe weather-related risks, all kinds of businesses can benefit from it. Businesses in the following industries may find parametric insurance worthwhile: agriculture, retail, renewable energy, food and drink, tourism and leisure, transportation, and oil and gas. If you aren’t sure whether parametric insurance is right for your business, call ALIGNED and speak with an insurance expert.
How can I purchase parametric insurance?
You can purchase parametric insurance through a reputable insurance brokerage like ALIGNED Insurance. Contact ALIGNED today to learn more or click here for a free quote.
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Source(s): 1Global News: Driver charged after tractor-trailer tar spill on Hwy. 401 near Brighton, Ont.;
2CBC News: Matters: Record-breaking snowfall buries Toronto in white; 3,4 AXA Global Parametrics: Parametric Insurance – Innovation strengthening climate resilience; Insurance Business Canada: “Lessons learned from the latest Canada flooding”; Insurance Bureau of Canada: “Study of Impact and the Insurance and Economic Cost of a Major Earthquake in British Columbia and Ontario/Québec”