How Total Weather Insurance Works

01:03AM Mar 09, 2011
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Jamie Wasemiller, operations manager and analyst with the Chicago-based Gulke Group Inc., says two key benefits of the new insurance are customizable contracts and not needing to prove loss to receive payments.

Producers pick the time period or periods they want covered, temperature and/or precipitation levels and the coverage desired. They can also choose which weather station they want to use to record data. According to WeatherBill, Total Weather Insurance (TWI):
  • is based on advanced agronomy, historical yield and loss data, weather history and long-range and short-term forecasts for the grower’s specific crop and location;
  • enables growers to customize plans;
  • bases premiums on historical measurements and forecasts;
  • offers coverage that can begin as early as 10 days from date of purchase (premiums increase as the season progresses and short-term forecasts become more accurate);
  • uses real-time weather data from the National Weather Service, the National Oceanic and Atmospheric Administration and regional weather stations to determine temperature and precipitation during the growing season;
  • issues payment when weather conditions specified in the policy occur (as verified by one of the sources listed above);
  • automatically sends payments and requires no proof of loss; and
  • collects premiums, minus any payouts, in November after harvest.
When considering a TWI policy, Wasemiller suggests, producers and agents should keep these factors in mind:
  • The historical information: Look at the numbers and how often the policy would have paid off.
  • How reported weather compares to your field conditions: "If you know your field is 3° lower than the weather, factor that into the contract."
  • 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. You need to factor in if this is a true hedge," he says.
  • Use of the enterprise unit discount: With the discount, there is the possibility that producers will have poor yields in some fields but receive no insurance indemnity because of overall production. "I would consider purchasing weather insurance to cover the worst ground within that enterprise unit," Wasemiller says.
  • Overall risk management strategy: Producers need to have a good idea of how much money they are going to use for marketing their grain through insurance and any other risk management tools.