Earth Observation a driving force in parametric insurance’s rapid growth

Parametric insurance is a rapidly growing corner of the insurance market. Unlike traditional, indemnity policies, which make reimbursements based on the actual amount of loss incurred, parametric insurance pays out a predefined amount based on the occurrence of specific triggers or events, such as a natural disaster.

According to the latest EUSPA EO and GNSS Market Report, parametric insurance is growing rapidly – by as much as 11% annually – particularly in sectors like agriculture and natural catastrophe coverage. This growth is being driven largely by the increasing availability and precision of Earth Observation data, which enhances both risk assessment and trigger verification.

For example, in the agriculture sector, insurance companies use Earth Observation images to measure observable and quantifiable parameters like soil moisture and vegetation growth. This information is used to compute an index, which insurers can then use to make a pre-specified pay-out whenever a natural disaster causes crop damage.

The benefits of parametric insurance include faster payouts, reduced claims disputes, and better risk management – all of which make it an attractive option for businesses and individuals seeking more efficient and reliable coverage.

One of those businesses is AXA Climate. AXA Climate is a subsidiary of the AXA Group—Europe's largest insurance company— fully dedicated to climate adaptation. They specialize in parametric insurance solutions, training, consulting, and software services for businesses and public organizations.

Remote sensing tools for better forest management

A long-time Copernicus champion, AXA Climate has been at the forefront of expanding parametric insurance’s use into new market segments, including forestry. For instance, with the support of the Horizon Europe funded SWIFTT project, the company is using Copernicus Earth Observation data to develop tools that can help foresters:

• Detect tree health issues: quickly identify and map areas where trees are dying, allowing for faster response to protect forest health.
• Assess storm damage: map areas affected by wind damage after a storm, aiding in efficient post-storm management.
• Identify wildfire risks: pinpoint areas at high risk of wildfires, enabling proactive prevention and better resource allocation.

“The goal of the SWIFTT project is to help foresters manage their projects through affordable, simple and effective remote sensing tools,” says Ariane Kaploun, Head of Nature-based Solutions at AXA Climate, the project’s coordinating partner.

SWIFTT is backed by EUSPA, who supports the adoption of Copernicus-based Earth Observation solutions in the insurance and finance domain by connecting stakeholders with relevant service providers, providing technical expertise and by financing pilot projects.

A suite of solutions – all based on Earth Observation

Leveraging on the SWIFTT project, AXA Climate has developed a wildfire detection algorithm for parametric insurance based on Normalised Burnt Ratio (NBR), a satellite-derived index used to assess the severity of a burnt area. Using Copernicus data and imagery, insurers can measure the destruction rate by comparing the health of the vegetation before and after a fire, with payouts being based on the difference between the two. 

“The use of Copernicus data is the key to us being able to provide foresters a parametric solution that ensures a speedy and transparent payout process after the damage is done, while also providing enough flexibility to be able to tailor the coverage to meet the users’ unique needs and level of risk,” adds Kaploun.

Specifically, the index is derived from bands 8 and 12 of the Sentinel-2 satellite, with the NBR giving insurers an indication of how healthy the vegetation is (i.e., the higher, the healthier). The index (and the payout) is based on the difference in NBR before and after a fire.

Furthermore, the use of Sentinel-2 imagery allows indemnity lead-times to be reduced from months to a few weeks, or even days, depending on the revisit time over the client’s location and the presence of cloud.

The parametric insurance index targeting wildfire detection together with the SWIFTT applications will provide forest managers with a suite of affordable, simple and effective remote sensing tools – all backed by Copernicus satellite imagery and powerful machine learning models.

"Supporting market uptake for EU companies using EU space technologies to address the Green Deal is part of our mission at EUSPA. This way of using Copernicus and leveraging its power to create sustainable, effective, and low-cost forest management tools is a success that will ensure Europe is well-positioned to combat climate change and preserve its biodiversity through healthier forests," concludes Fiammetta Diani, Head of Market, Development and Innovation Department at EUSPA.

Are you an insurance company, bank or financial institution interested in learning how EUSPA can support your space-based solutions? Get in contact with us at market@euspa.europa.eu.

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