Parametric insurance and body corporates: some practical observations for strata committees
In recent years, some Australian body corporates have begun to see parametric-style flood insurance included in renewal discussions.
Unlike traditional insurance, parametric cover does not respond to assessed damage.
Instead, it provides a pre-agreed payment when a specified trigger is met — commonly a river gauge reaching a nominated level.
For strata committees, this is unfamiliar territory.
A strata experience
During a recent insurance renewal, a large inner-urban apartment building was presented with a parametric flood option as traditional loss-based insurance was not available.
The structure appeared simple:
cover would trigger once a nominated public river gauge reached a specified height
payouts increased on a sliding scale as the river level rose and then were capped above a certain river level
payment was automatic, regardless of the actual damage incurred
the premium was lower than comparable traditional flood cover.
At first glance, the proposal appeared straightforward.
However, when examined more closely, several practical issues became apparent.
Which river gauge is being used?
Flood behaviour along major rivers varies by location.
In this case:
the proposed trigger relied on a downstream public gauge
flood impacts near the building were typically assessed using different river reaches
some nearby gauges were not calibrated for insurance purposes
This raised a reasonable question for the committee:
Could the building experience flooding or groundwater impacts without the nominated gauge reaching the trigger level?
This is not a flaw in parametric insurance as such, but a reminder that the choice of trigger matters greatly, particularly for urban buildings.
Damage does not always increase smoothly with water level
Parametric structures also require some understanding of how damage is likely to increase as flood levels rise.
For many apartment buildings, costs increase unevenly.
For example:
a modest rise in water may have little effect until critical systems are affected
failure of electrical or lift equipment can cause a major increase in cost
additional water beyond that point may add comparatively little further damage
If payout curves assume damage increases steadily with water level, there is a risk that payments and actual costs do not align well.
This does not mean parametric insurance cannot work, but it does suggest that:
payout thresholds benefit have to be checked against real building behaviour
simple linear assumptions is not likely to be appropriate.
A contrasting example from a large industrial site
The Understanding Flood Risk in Australia presentation by Lochton included an example from a Queensland-based manufacturing operation who is using parametric insurance to cover flood damage and business interruption.
In that case:
flood depth was measured directly at the site using sensors
payments were triggered automatically as water reached defined depths
smaller payments were intended to cover low level flooding resulting in clean-up and disruption
larger payments applied once machinery, services and stock were affected
the overall programme involved tens of millions of dollars of cover, at an annual cost of just over $1 million
The example was presented to illustrate how parametric structures can be tailored to known damage pathways, particularly where downtime is costly and recovery speed matters.
It was not suggested as a universal solution, nor as a replacement for physical mitigation.
So what does this mean for strata committees?
For most body corporates, parametric insurance is not a technical question — it is a governance and judgement question.
The practical “so what?” is this:
Flood risk cannot be reduced to a single number or map
Insurance products increasingly require committees to understand how damage occurs, not just whether flooding is possible
Poorly aligned insurance can create false confidence or unexpected gaps
Well-aligned insurance can support faster recovery — but only in specific circumstances
In other words, parametric insurance forces committees to confront questions they often haven’t needed to answer explicitly before.
Those questions include:
At what point do costs escalate materially for our building?
Which systems or spaces drive disruption and downtime?
Which impacts are realistically preventable, and which are not?
What risks are we choosing to retain, and why?
These are not questions with perfect answers — but they are questions that benefit from being thought through deliberately rather than reactively.
Why this is hard for committees to do alone
Strata committees are typically:
volunteer-based
time-constrained
reliant on external advice that comes in silos (engineers, brokers, managers)
Each adviser may be acting reasonably within their own remit, but committees are left to integrate:
flood reports
insurance terms
operational realities
owner expectations
Parametric insurance, in particular, sits awkwardly across these boundaries.
It is neither purely technical nor purely financial — and so it can fall between the cracks.
A practical way Strabo Rivers can assist
Strabo Rivers does not provide insurance advice and does not design insurance products.
Where we can assist is at a more basic — but often missing — level.
In practice, this involves helping committees to:
1. Make damage pathways explicit
Documenting how flooding is likely to affect this building in practice, including:
where costs escalate suddenly
which failures drive downtime rather than repair cost
what has caused the most disruption in past events
This creates a shared, written understanding that committees can return to over time.
2. Check alignment between impacts and insurance triggers
Reviewing whether proposed insurance triggers (such as river gauges or depth thresholds):
are relevant to the building’s location
correspond to meaningful impact points
risk missing high-cost scenarios
This is not about optimising products — it is about avoiding obvious misalignment.
3. Distinguish between mitigable and non-mitigable impacts
Helping committees identify:
impacts that can reasonably be reduced through physical or operational measures
impacts that are difficult or uneconomic to mitigate
This distinction allows insurance (or self-insurance) to be targeted, rather than used as a blunt instrument.
4. Support proportionate, defensible decisions
Assisting committees to:
document trade-offs clearly
explain decisions to owners
show that options were considered thoughtfully
reduce the risk of hindsight criticism after an event
The aim is not to eliminate flood risk, but to make decisions that are reasonable, explainable, and consistent over time.
Why this matters
Flood events are stressful, disruptive, and often emotionally charged.
In those moments, the difference between:
“we didn’t know”
and“we understood the risk and made a considered decision”
can matter as much as the financial outcome itself.
Parametric insurance may or may not be appropriate for a given building.
But clearer thinking about damage pathways, recovery priorities and retained risk is almost always valuable — regardless of the insurance outcome.