Total Weather Insurance, offered by Climate Corporation (Climate.com ), is a product that pays growers for bad, yield-sapping weather events that happen during the growing season. Such events include too much rain, too little rain, heat or freeze at critical portions of the growth cycle.
So, how did the company handle the hammering corn and soybeans took during the 2012 drought?
“This was a year with a lot of bad weather, and our sales are largely across the Corn Belt,” says Jeff Hamlin, the company’s director of agronomic research. “Since our policies are weather insurance, we paid out a lot of money to policy holders.”
As one might expect, in Illinois and Indiana — where a lot of the heat and drought was centered — “we paid out on a high percentage of policies: In Illinois, 98 percent of all policies; in Indiana, 90 percent. We paid on 100 percent of policies in Colorado, Missouri, Tennessee and Nebraska. Across all states, we paid on 80 percent of all policies.”
In Nebraska, where irrigation is common and growers expect yields around 200 bushels, “it’s likely the producers still made yield, but we paid out 100 percent because policyholders there generally use our coverage as a way to manage or hedge their irrigation expenses.”
Hamlin says, “It’s always interesting — when we have a difficult year like this, with a lot of claims — to see the ‘ah-ha!’ moments growers have when they find out the policy really does work as promised.
“We have all these policyholders who haven’t had to go through an audit or deal with an adjuster. A lot of growers have told me they’re not expecting to get their federal crop insurance check until February or March. On the flip-side, with our policies, if bad things happen a check is in the mail within 10 days. And they’re now holding a check with crops still standing.”
For more on Total Weather Insurance, see deltafarmpress.com/management/filling-gap-weather-specific-crop-insurance 
Total Weather Insurance isn’t a government program “where, essentially, everyone is buying the same thing,” says Hamlin. “It’s a product highly customized to the purchaser. The grower provides information on his Actual Production History (APH), soil type, relative maturity of the seed he’s planting, his exact location.
“All those data are used by us to understand what his risks are, and that leads to a customized weather insurance policy to protect against whatever is most likely to cause problems in that region of the country.”
The products pay out based on the occurrence of a measured event rather than a loss that must be verified and proven through an adjuster on site. These are pre-agreed contracts, “Where we say ‘If X happens, you will be paid Y dollars — and it will happen automatically, without adjusters, claims processor proof of loss, or the like.’”
Why are growers purchasing the insurance?
“They almost always buy it in conjunction with federal crop insurance, which allows most growers to protect most of their input costs these days. With commodity prices as high as they are, most growers who have taken advantage of the federal crop insurance program aren’t going to lose money farming if they have a terrible year. But in a worst-case situation, they may farm that year for free.”
What the product does is “complement” the federal crop insurance program. It protects some of the profits growers expect to see at the start of the year and won’t realize if bad weather causes yields to fall low enough.
How much is at risk?
Hamlin points to “a typical situation” of a corn grower who has a 150-bushel APH and is in the federal crop insurance program.
“Basically, the federal government will say, ‘You’re insured to the financial equivalent of 120 bushels per acre — 80 percent of what you’ve proven you can produce on the land over the last decade.’”
Most growers have seen their yields increase over the last 10 years. Even though the 150 bushels per acre is the proven yield, they’re often fertilizing and spending on inputs trying to achieve 180-plus bushels. The genetics, precision farming and new technologies have allowed such a yield boost.
So, Hamlin argues, a grower with a 150-bushel proven yield — but insured only at 120 bushels — is incurring input costs aimed at 180 bushels. That leaves an uninsured profit potential of 60 bushels.
“That’s the portion of the cropping curve potential we’re trying to help growers lock in. Say there’s a grower with 1,000 acres of corn this year. He has a 150-bushel APH and, with $8 corn, he assumes there’s $1.44 million in revenue potential. He was able to get the 180 bushels per acre that he’d (paid inputs) for. Federal crop insurance only insured him for $960,000 of guaranteed revenue.
“That’s good, but there are a lot of producers — in Missouri, Illinois, Indiana, and Kentucky — who left a lot of profit potential on the table this year. If they took federal crop insurance at a good level, they’ll probably be made whole. They’ll get back to break-even, but most, for every 1,000 acres of land, will have lost $500,000 of profit potential. Most growers don’t want to leave that much money on the table.”
Climate Corporation clients were able to recoup the money that would have otherwise been lost. “We had numerous growers who received $1 million-plus on their (federal) corn policies. There were a lot who got $600,000 or $700,000 from the weather insurance.”
Product upgrades for 2013
Climate Corporation is “a technology company, and we’re always trying to incorporate the latest research from universities, from various agronomists working on corn and soybeans around the country,” says Hamlin.
“What can we do to make the program better? We want to know as much as possible about what is going on in the field simply by looking at local weather reports.”
- A growth stage tracker. “In past years, we’ve had policies where a grower would have heat coverage from July 1 to July 30 — some set of dates based on his latitude. That range would typically fall when his crop was pollinating or in the early grain-fill period.”
But, those averages don’t always happen. In fact, 2012 is a good example of a year “when many fields pollinated earlier than would have been expected in a normal year.
“So, we’re moving to a system where rather than having static dates of coverage growers will have coverage between a set of heat units. They’ll have coverage, say, from 800 heat units to 1,600 heat units. That allows the policy to flex and provide coverage when needed.”
- Soil moisture tracker. “We’ll essentially pay growers based on the available water in the soil rather than the inches of rain that falls during the course of the season.”
- Rainfall grids.
- Temperature grids.
- Field level data drives.
“We’ve had numerous requests from growers wanting access to the data we’ve gathered. They might say, ‘I’m interested in understanding what the actual rainfall was on my farm in 1987 — I remember that was a weird year, but I don’t remember exactly what happened. Can you tell me what the pattern of rainfall or heat was?’”
The company has extensive weather, soil and yield data.
“We do millions and billions of analyses every day,” Hamlin says. “So, these data are available to growers, and they can do their own analysis. They can look at historical records or see what is predicted for their field for the next 10 days. They can compare current year and past years.”
What about rice and cotton products?
“Those are still on the road map of things we’d like to provide,” he says. “But, they won’t be available for the 2013 crop year.
“We continue to refine our corn and soybean products and expand offerings there. For example, Arkansas was a state that we didn’t have any sales representation in last year. For 2013, Arkansas will have sales representation, as well as Mississippi and other southern states.”
Have you seen a marked increase in interest in your products since the drought kicked in?
“Yes. There are early adopters who will try new products quickly. This is the third year we’ve had the total weather insurance products available.
“But,” Hamlin says, “we’re seeing a huge expansion in not only grower interest, but agent interest. Right now, we’re in the process of signing up agencies that will go through the training and be able to offer the products.”
What about the farm bill and crop insurance?
“It’s something we’re certainly watching, says Hamlin. “We’ll see what is in the final farm bill. There are things like the shallow coverage option. We think more choices are good for growers, and there should be various risk management options available for them.
“But there’s still a lot of uncertainty.”