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Head of AXA Climate, Asia

The Head of AXA Climate for Asia describes how new data sources, enhanced experience and greater expertise are being used to design parametric insurance coverages that are cost-effective, precisely tailored and relevant for diverse clients and perils.

The weather didn’t use to dominate the news. Now, hardly a day goes by without a story about record-breaking heatwaves, wildfires, windstorms, floods or hailstorms.

These events only underscore the urgent need for action and remedies that help to lessen the inescapable, growing impacts of climate warming. Parametric insurance offers one such solution, and more and more organisations are finding new ways to use parametrics to mitigate various weather risks. Ankush Bhardwaj, Head of AXA Climate for Asia, recently spoke with Fast Fast Forward about these developments.

Private sector demand for parametric insurance has grown markedly over the past few years. Why is that?

Ankush Bhardwaj: Parametric coverages are a relatively new development. AXA, for instance, issued its first parametric policy in 2006; that was done with the World Food Program to cover droughts in Ethiopia. Back then, re/insurers had limited experience developing and underwriting these structures, and many corporate risk managers and brokers often weren’t familiar with this option. Things began to change a few years ago when re/insurers, including AXA XL, started to establish dedicated parametric teams and describe and promote these solutions in various forums.

As private-sector clients became more familiar with parametric insurance, that sparked an emerging “virtuous circle”. Increased demand prompted re/insurers to put more capacity into parametric coverages and expand their internal capabilities and expertise. For instance, AXA now has people working behind the scenes with advanced degrees, including many with PhDs, in atmospheric sciences/climatology, agricultural economics and geology/hydrogeology. They are supported by satellite imagery and data modelling experts who collaborate with the “hard” scientists to analyse the economic impacts of different weather events.

And so the circle turns. Greater awareness and understanding, coupled with more capacity and enhanced expertise, help make it possible to implement parametric schemes that are ever more cost-effective, precisely tailored and relevant for a broader range of clients and perils. I would also note that the benefits aren’t limited to risk mitigation. AXA XL and AXA Climate used these innovative capabilities and expertise to develop a risk scanning solution and a risk monitoring application that help clients improve their responses to and recovery from natural disasters.

What are some examples of how parametrics are being used in new ways?

Ankush Bhardwaj: In 2019, devastating wildfires swept across Australia. The country is one of the world’s leading grain producers, and many plantation operators experienced severe losses. This event also demonstrated some of the challenges in mitigating the risks associated with more extreme and unusual weather episodes.

For instance, indemnity-based crop insurance traditionally was underwritten and priced based on historical data (including loss experience). However, as the climate warms, this approach is becoming less reliable and, as a result, insurers must proceed cautiously. Thus, after the 2019 wildfires, Australian plantation owners faced a situation where the indemnity coverages on offer featured less capacity and higher rates. Not a pleasant prospect for companies struggling to recover from a significant natural disaster.

This presented an opportunity for AXA Climate to design parametric policies for large plantation owners and managers that drew heavily on satellite data; AXA XL’s Australian operation also contributed to this effort.

Before I continue with this example, I want to stress that a parametric programme isn’t necessarily preferable to an indemnity policy or vice-versa. Both can provide robust balance-sheet protection, and the suitability of one versus the other depends on a range of factors specific to individual clients.

In this case, a satellite-based approach had two important advantages. First, it enabled us to construct models that incorporated historical data and predictions about expected future weather conditions. The latter component capitalised on data from newer, more sophisticated satellite networks and weather monitoring stations that our climate scientists used to develop weather forecasts for the upcoming growing season.

Secondly, one of today’s satellite networks is particularly sensitive to fires. The images they generate show burnt areas as small as 20X20 meters at five severity levels, from barely scorched to completely incinerated. Accordingly, at any time during the policy period, we can analyse the satellite imagery, run the parametric model, and make payouts based on the agreed thresholds.

In short, this satellite-based design, with its forward-looking element and highly granular imagery, offered plantation operators a certain, fast and cost-effective solution.

You also mentioned grain exporters. How can parametric insurance help alleviate their climate risks?

Ankush Bhardwaj: Grain exporters typically reserve a certain amount of shipping capacity in advance based on projected yields. However, if the harvest falls short, the exporter still must pay for any unused capacity. In this case, we created parametric coverages that used temperature, rainfall, regional yield or a combination of these as the index value since these are closely correlated with the actual yield. Also, like the programmes I just mentioned, the models used to underwrite and price these solutions included estimates about growing conditions in the coming year. The payouts cover the excess capacity for which advance payment has already been made and are done on a sliding scale. In other words, as the index value shows that exporters will receive progressively smaller volumes, the payouts increase commensurately.

You cited two examples from Australia, both of which concern agricultural companies impacted by wildfires and drought. What about other countries and perils?

Ankush Bhardwaj: Another area we’re currently investigating is urban flooding; this is one of Asia’s most significant and challenging perils, and the problems are only going to worsen. The difficulty with floods is that water heights can vary considerably in different areas. In other words, the same volume of water can produce distinct damage levels depending on the location. Moreover, elevation changes make it extremely tricky to insure flood on a parametric basis; there aren’t consistent parameters we can use to create index values.

Nonetheless, we are close to solving this problem with what we call digital elevation models or DEM. The concept involves creating digital elevation models for major cities as the basis for underwriting and pricing parametric policies covering particularly flood-prone areas. As soon as an area records water levels above X cm, the beneficiary receives a payout of Y rupee/rupiah/baht or whatever. The beneficiaries are expected to be municipal governments that use the funds for disaster relief and recovery and private companies seeking to lessen the financial burdens of increasingly prevalent flooding. The programs will also draw extensively on satellite data, both in developing the models and in determining when water levels exceed the threshold values.

How do you see parametric insurance evolving?

Ankush Bhardwaj: The clients and brokers I work with across Asia are acutely aware of how our changing climate could impact revenues and earnings. That includes companies in such sectors as agriculture and alternative energy which are directly exposed to weather risk, and those, for instance, in commercial finance, construction, tourism and shipping where the exposures are more indirect. Examples of the latter include loan repayment failures due to weather perils, construction projects subject to work stoppages in heatwaves, holiday resorts facing more precarious nat cat events like typhoons, and barge operators that can’t operate when rivers/canals become unnavigable.

These are only a handful of ways climate change threatens companies in diverse sectors, highlighting the need for remedies to mitigate the impacts. Given these realities, I expect insurers and clients will continue to capitalise on prior experiences and new tools to craft ever more tailored, relevant and cost-effective parametric solutions. Finally, since we are all in this together, I further anticipate that these efforts will be characterised by even greater collaboration and partnership between insurers, private companies and local/regional governments.

Ankush Bhardwaj is Head of AXA Climate for the Asia-Pacific region. In this role, he oversees the development of the climate management business, including parametric insurance. He has been with the AXA group for 12 years in various roles in India and Singapore, including heading AXA’s retail business in Singapore. Ankush is based in Singapore and can be reached at


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