Customizable Total Weather Insurance policies protect against a range of weather perils, including frequent rains that delay harvest.
A new program that offers multiperil weather insurance is being hailed as the next step in protecting farmers against weather-related crop loss.
Adverse weather conditions are responsible for more than 90% of crop loss, according to USDA, and even small fluctuations in the weather can affect potential yields.
"In the evolution of weather contracts, we made a giant step with one of our weather insurance providers. This is being labeled as Total Weather Insurance [TWI]," says Derrik Hobbs, an agent with Silveus Insurance Group in Warsaw, Ind.
In November, WeatherBill Inc. announced the first portfolio of insurance products designed to protect agribusinesses from the financial impact of extreme weather. TWI policies are optimized for corn and soybean production in 17 states: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Carolina, North Dakota, Ohio, South Carolina, South Dakota, Tennessee, Texas, Virginia and Wisconsin.
According to WeatherBill, optimized coverage means that the metrics are already in place for the crops in those states but producers can also customize coverage for different crops and geographies.
For more than 70 years, producers have had access to some form of weather insurance. Since 1938, USDA has regulated the government-subsidized Multiple Peril Crop Insurance (MPCI) for a variety of crops, including most row crops, when the Federal Crop Insurance Corporation was created. Under the program, most farmers can insure up to 85% of their proven yields, based on average production history (APH). However, the program leaves a percentage of the crop uninsured.
Guard Against the Elements. The policies were originally rolled out as a tool to protect against one specific weather event at a time, Hobbs says.
If a producer needed coverage for multiple events, multiple policies were required, creating confusion and "unjustifiably high cost." Now, an insurance agent can sit down with a producer and design a single policy that protects his operation from multiple weather events.
"Financially, these policies are constructed to compensate producers for the gap between their expected revenue and the amount of revenue protected by their multi-peril crop insurance," Hobbs says.
That gap could be even larger if a producer’s proven yield is lower than his potential yield because of previous years’ bad weather, poor field management or no crop history in that field, Hobbs says. Even without the above challenges, APH yields are often lower than potential yields because higher-yielding varieties and hybrids have only been on the market for a few years.
For example, a farmer has a proven 140-bu.-per-acre crop insurance yield on corn and buys 80% revenue protection. In addition, he buys a high-yielding hybrid. If he’s hoping to yield 200 bu. per acre at $5 per bushel, he has $1,000 in anticipated revenue, but he’s guaranteed only $560.
"That’s a massive gap," says David Friedberg, CEO of WeatherBill. TWI seeks to fill this gap.
- March 2011