Australia ranks among the world's top eight wine-producing countries, contributing more than $45 billion annually to the national economy. With over half of the country's vineyards located in South Australia, the region plays a critical role in the global wine landscape.
But in September 2024, an unprecedented frost event delivered a major setback to this vital industry. With frost insurance no longer available from the traditional market, many wineries were left unprotected and forced to absorb over $2 billion in losses directly onto their balance sheets.
"This was another setback for an industry already doing it tough in the face of global economic pressures," Lynn Roehrig, Descartes Underwriting Head of Business Development for Australia and New Zealand, said.
"Natural catastrophe events compounded with lower global sales and exports being down have really hurt the industry."
According to Lynn, growers in Adelaide are beginning to see signs of sales recovery which will relieve some pressure, but natural catastrophe exposure remains ever present.
Growers left unprotected
With traditional all-risk coverage for viticulture disappearing from the insurance market about five years ago, Australia's wine industry has been exposed and vulnerable to perils like heat, fire, hail and frost.
After last year's frost event, there's increasing demand for more reliable, responsive insurance solutions – especially among growers who are highly exposed to specific perils that traditional policies no longer cover effectively.
Parametric insurance offers a viable alternative, providing protection for measurable triggers like frost, heat, fire to crop, drought, and excess rainfall – filling a critical gap in the market.
"Traditional insurance simply doesn't offer this type of coverage anymore, largely due to the severity of particular events in recent years," Lynn said.
"To address this growing gap, an innovative solution was needed for Australia's wine industry."
The Descartes Underwriting team are collaborating with brokers in South Australia's Barossa, McLaren Vale and Riverland areas to better understand the unique challenges faced by wine producers.
"Last's year's frost event was front of mind for the brokers we met with – frost and heat are the two perils they are most concerned about," Lynn said.
A perfect storm
The frost event was particularly devastating because it struck at a time of increased crop vulnerability. Warmer temperatures in early September triggered earlier-than-usual bud bursts, extending the window in which crops were vulnerable to frost damage.
That risk was exacerbated later in the month when the minimum temperatures dropped significantly compared to the previous year. In the Barossa Valley, growers reported temperatures as low as -4°C – cold enough to render frost fans ineffective – resulting in widespread damage to crops.
One 80-hectare vineyard growing Shiraz and Cabernet Sauvignon suffered a severe crop loss, causing around $1 million in damages.
"Because a lot of the big growers have grapes growing in different regions, they can source grapes from elsewhere if they get hit by an event," Lynn said.
"But then there are single vineyard vintages that only grow in one spot, so if those are impacted, they will suffer a significant loss because they can't bring grapes in from somewhere else. Region wide events could also see reductions in yield numbers."
Expertise meets innovation
By combining deep industry knowledge with cutting-edge data and technology, Descartes is helping Australian wine producers safeguard their operations with tailored, transparent and responsive insurance solutions.
"We have expertise in this space, with agronomists on the team who come from the industry – sharing their industry knowledge and experience, and understanding what growers need, enables us develop tailored solutions," Lynn said.
Descartes can work with the client and broker to design a parametric frost cover aligned with the vineyard's key risk period, using data from pre-existing on-site weather stations (if available), BOM stations, IoT-driven weather stations and long-term climate trends to determine the coverage.
"The brokers we spoke with were excited to be able to offer something to their clients that they haven't been able to for several years, outside the standard fire and hail cover," Lynn said.
How parametric insurance works
Descartes parametric frost solution is structured using a minimum daily temperature index from either onsite or local weather stations that capture precise temperature variations throughout the premises, such as low valley frosts versus warm sunny slopes, to distinguish field specificities and minimise the basis risk.
Coverage periods usually stretch from August to October and can be adjusted to reflect an early start of the blossoming season or subdivided according to each phenological stage vulnerability.
Cover is based on pre-defined parameters, such as the minimum temperature recorded, and pre-agreed indemnity (the expected financial loss). In the event of frost, if those predefined parameters are triggered during the coverage timeframe, clients would be swiftly compensated based on the temperature data measured throughout their specified risk period.
With this type of insurance, if a similar event to that experienced in the Barossa last year were to occur and the temperature reached -4°C, the vineyard owner would receive a full payout at the end of the risk period.
"If an extreme climate event hits, insured clients have peace of mind that their coverage can kick in when needed, covering all kinds of losses, including non-damage business interruption. Clients receive immediate income stability," Lynn said.
Key Facts:
About Descartes
Descartes is a global corporate insurance specialist that collaborates with brokers to protect their corporate and public sector clients against climate, cyber and other emerging risks. At the forefront of AI and Data analysis, Descartes utilises cutting-edge technology combined with a new generation of data sources, to model, assess and manage risks.
Offering a full range of insurance products, including cost-effective and fully transparent parametric solutions with predefined and swift claims payouts, Descartes has already provided over $10 billion capacity to its clients through corporate and commercial brokers.
With a global footprint and strong U.S. presence, Descartes serves a diverse portfolio of clients in more than 60 countries, with 18 offices spread across Europe, Asia-Pacific, Latin and North America.
Descartes is comprised of Descartes Insurance, a full-stack insurer operating in several European countries, and Descartes Underwriting, a global MGA backed by a panel of tier-one risk carriers. The company has been financed with over $141M by investors including Highland Europe, BlackFin, Serena, Cathay and Eurazeo.
