Filling the gap: weather-specific crop insurance

Quick checks, protecting top-end bushels and managing risk

What is in this article?:

  • Weather-specific crop insurance available to farmers.
  • Corn, soybeans and wheat products available.
  • Rice, cotton products coming.

What is the real value of crop insurance and how can a farmer bridge any gaps in his coverage?

Consider this: a corn farmer’s Actual Production History (APH), which the federal crop insurance program will use as a basis for payouts, may be 130 bushels per acre. However, his expectation and true target yield – especially after an often staggering, vast array of input expenses – is 180 bushels.

An insurance company says its product will protect those 50 uncovered bushels in a novel manner, using real-time weather information. And farmer clients can track the same data and know when checks are headed to their mailbox.

The company

Despite its name, Climate Corporation (formerly WeatherBill), is keen to distance itself from the tar-baby of global warming. But Jeff Hamlin, director of agronomic research, does say that “weather seems to getting more extreme on all sides these days. The wet years seem to be wetter and the dry years seem to be drier. The possibility of excessive or cold seems to (lead) to more volatile (situations) than in the past.

“That’s impacting agriculture and we’re trying to help agricultural entities navigate this new climate we seem to be in.”

The company has been around since it was founded by several former Google executives in 2006. The pair “saw an opportunity to apply technology to help offer insurance products to a lot of weather-sensitive businesses” says Hamlin. “I was the second employee of the company (hired), so I’ve been here quite a while.”

At the time, “we saw there were a lot of weather-sensitive businesses out there; agriculture, of course, through construction companies unable to work when it rains to county fairs that (suffer attendance losses) when it rains to golf courses and sporting events to travel and leisure. A lot of things are impacted by the weather.

“We’d ask businesses ‘what is bad weather to you? If you can tell us what it is, we’ll build a customized insurance product to cover it.’”

Eventually, Climate Corp’s predecessor began to hone in on agriculture. “It’s the one thing that drives yields and really trumps all other management decisions a grower can make.  A grower can buy the right seed, have the right fertilizer program, the right chemical program – do everything right – and if it doesn’t rain in July and August, it doesn’t matter what inputs he chose, it still won’t be a good year.

Initially, the company built on-demand products where growers “would say ‘I need rain in August’ or they’d tell us the time period they needed certain weather and what kind they needed. But it got to a point where growers were requesting a full-season product for several reasons. First, there are a number of weather events that can impact them through the year. It was proving difficult for them to decide what events to protect, or not to protect, against. They just never knew what was coming in a given year.

“Second, they wanted to get their insurance done at the start of the year, in March when they were doing federal crop insurance.” That was preferable “to interrupting the growing season and, suddenly in July, coming up with an insurance policy that made sense.”    

In turn, that led, to “Total Weather Insurance” -- a full-season program for corn, soybeans and wheat -- that basically takes an operation from seed to harvest. 2012 will be the second year the full-season weather program has been available.

“It has undergone quite a bit of growth,” says Hamlin. “2011 was the first year we offered it and it did extremely well. We sold a lot more than expected.”

As a result, the company grew from about 30 employees to 100-plus.

Is there a region that’s signing up quicker?

In 2011, sign-ups were limited by company resources. “We had three people – myself included – able to go out and train crop insurance agents on how the product works. … We focused on the corn and soybean belts … but, really, anywhere we presented it there was about a 75 percent close rate. The grower would see (the product) and about three-quarters of them ended up buying it.”

But because of too few employees, says Hamlin, “there was an inability to get into Alabama, Mississippi, Arkansas and other states where corn and soybeans are grown.”

For 2012, instead of three people in the field “we’ll have 33. Hopefully, we’ll cover a lot more of the country and let growers know this exists and is an option.”

Discuss this article 2

This is very similar to programs started a decade ago by the World Food Programme in many developing countries, such as Mexico, Kenya and Malawi. These programs have had their struggles and have been subsidized by the World Bank or the International Monetary Fund. Implementing such a program in the US, with the producer paying the full premium while competing with federally subsidized, multi-peril, insurence, is a daunting task. Changing the name of the company to catch the climate-change wave of media coverage is good marketing however and should provide a boost.

This company continues to reinvent itself. What began as a company that was to allow small businesses, such a a bicycle rental shop, to purchase "insurance" (ie. a weather derivative transacted through a Bermuda-based partner) against rainy days, rain "insurance" for travelers, and snow "insurance" for contests, to a company that is now focused only on the agricultural sector. There seems to be a struggle to find it's niche.

They've got some positives behind them however. No longer are they bound to offer only weather derivatives, the availablitilty of insurance paper provides a more attractive contract form. They have acquired a significant infusion of capital from the likes of Google and others. And their management team consists of many with previous experience at internet commerce corporations such as Google and e-Harmony. Their strengths and business model are highly based on internet commerce, which may also be their greatest weakness, as most farmers may prefer to work with local agents with a firm hand shake rather than a click and buy process.

By Anonymous (not verified)  on Nov 10, 2011

And b4 long they will convince Congress that they can take over weather perils that regular crop insurance covers. Congress can provide a "subsidy" directly to them for each policy sold instead of the current subsidy for APH, GRP and RI coverage to producers through private companies. Of course, ask those in Texas how much their coverage will cost in 2012 - especially summer months! It is almost or is dollar for dollar.

This is their foot in the door........

By Anonymous (not verified)  on Nov 12, 2011
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