Weather insurance closes a gap in crop insurance
Weather during recent growing seasons has been so varied that Robert Jones doesn’t know what normal is anymore.
"We’ve had more major droughts since 1983 than my grandfather and dad had in their entire careers," says Jones, who farms 5,000 acres of grain in Palmyra, Ind. "We’ve seen a lot of crop failures, and federal insurance just doesn’t cover enough."
Last year, Jones heard about Total Weather Insurance (TWI), provided by The Climate Corporation (formerly WeatherBill). TWI is full-season weather insurance that helps farmers lock in profits by protecting against weather events that cause production shortfalls—long before federal crop insurance kicks in.
Payouts for Weather. TWI policies are based on agronomy; historical yield and loss data; weather history; and long-range and short-term forecasts for a farmer’s specific crop and location. The company uses real-time weather data from the National Weather Service, the National Oceanic and Atmospheric Administration and regional weather stations for temperature and precipitation during the growing season.
After a producer answers questions about production practices, the TWI Farm-Level Optimizer runs an analysis to recommend a policy tailored to the crop, location and soil type. The producer then has the option of modifying coverage dates or thresholds to account for specific production practices. All coverage is based on the 2.5×2.5 mile rainfall grid and temperature station specific to the field location.
TWI bases premiums on historical measurements and forecasts. It offers coverage that can be locked in early in the off-season for optimal rates but can also be purchased until the March 15 federal crop insurance deadline (premiums increase as the season progresses and forecasts become more accurate). Producers don’t owe any premium until the end of the growing season, and TWI issues payouts when weather conditions specified in the policy occur.
"There is no adjustment period or claim period; producers get a check if bad weather happens, regardless of yield," says Jeff Hamlin, director of agronomic research for The Climate Corporation. During 2011, the company paid out for the early season rain component of client policies in 52% of counties where coverage was purchased, while drought and heat payments were made to 48% of policyholders.
Beginning this month, TWI is available for the 2012 corn and soybean crops. Producers can visit www.climate.com for information or to find a TWI agent. "Now is the time to lock in good rates before the March 15 deadline," Hamlin says.
How to Decide. When considering a TWI policy, Jamie Wasemiller, an analyst with Gulke Group Inc., suggests keeping these factors in mind:
- The historical information. Look at the numbers and how often the policy would have paid off.
- Customized TWI policies can act as optional units coverage for farmers who decided to take advantage of the enterprise units discount on their federal crop insurance.
- Premiums compared with coverage. Wasemiller advises keeping premiums to about 15% of the dollar coverage purchased. "If you want to do more than that, sit down and talk with your adviser. These products can be expensive, but it shouldn’t be just a yes or a no."
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