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A fresh face in crop insurance

Photo by Tim Lloyd
Nov. 23, 2010
About the author
Tim Lloyd
Multimedia Editor
This story also ran in the Kansas City Star. Would you like Harvest stories in your print publication?  Email inquiries to Donna.Vestal at KCUR dot org. 
 

Techies in Silicon Valley have launched an insurance service for farmers seeking insulation against the largest source of crop loss — bad weather.

It’s called WeatherBill, and the company’s deep-pocketed investors are betting that they’ve caught lightning in a bottle.

The California company, which already sells insurance against nasty weather to clients such as the U.S. Tennis Open, is in the midst of shifting 80 percent of its focus to agriculture, according to WeatherBill executive Greg Smirin. 

“Clearly we think there’s a big market for this,” Smirin said. 

On its face, the sales pitch to farmers is simple: Insure against bad weather during key times of year such as the planting season — a protection that goes beyond what is available through federally subsidized crop insurance. 

The mechanics of WeatherBill’s product, however, are decidedly more complicated.

A history of federally subsidized crop insurance

1938, in the wake of the Dust Bowl the Federal Crop Insurance Corporation (FCIC) was created. The program remained largely an experiment until 1980.
 
1980, The Federal Crop Insurance Act increased the number of crops covered, encouraged the replacement of free disaster coverage in Farm Bills created in the 1960s and 70s by offering subsidized premiums.
 
Late 1980s - 90s, the federal crop insurance program did not reach the level of participation Congress had hoped for prompting the passage of four ad hoc disaster relief bills from 1988 through 1994 to cover weather related crop losses. 1994, Federal Crop Insurance Reform Act required farmers enroll in the crop insurance program if they wanted to be eligible for deficiency payments under price support programs, some loans and additional benefits.
 
1996, Congress repealed the Federal Crop Insurance Reform Act.  However, farmers still had to participate in the crop insurance program if they wanted to be eligible for disaster benefits for that crop year. That same year the Risk Management agency was created to administer the FCIC.
 
2000, Congress enacted legislation that allowed private sector entities to partner with the Risk Management Agency to research and create new insurance products and features.
 
Source: USDA
 

The company, founded in 2006 by ex-Google development team members, weaves together sophisticated weather models and market factors then spits out scenarios on its website showing estimates of how much a farmer could lose due to bad weather — excess rain, heat, drought and freeze.  The website then offers up plans that would, for example, pay out if rainfall goes over a certain level more than six times during a prime planting month.

WeatherBill essentially insures against lost yields (and profit) during harvest that could be the result of, for example, difficult planting conditions.    

The cost depends on the crop and location. 

 “What I tell my clients is that there’s a dollar menu, Applebee’s and Ruth’s Chris level,” said Steve Sims, an independent crop insurance agent in Indiana who started selling WeatherBill in November. 

WeatherBill markets its product through agents like Sims, who also sells federally subsidized insurance.

Sims laid out an example in which an Indiana corn farmer is looking for added protection against yield lost due to bad weather.  In the scenario the farmer is expecting around 160 bushels per acre and WeatherBill premiums range from around $20 to $50 per acre. 

WeatherBill declined to share early sales numbers, but Sims said that two out of the four clients he saw the first day WeatherBill came on the market signed up for the service.           

“If I can be successful 50 percent of the time I’ll take those numbers,” Sims said.             

But convincing farmers to take a chance on a fresh face in a crowd of crop insurance stalwarts is no small task.

 “I think farmers will be interested in this product, but I think they’ll be hesitant as well,” said Ray Massey, a crop insurance expert with the University of Missouri.  “There's going to be an issue of trust.”

As a service, though, Massey thought WeatherBill could to be on to something in serving up a variety pack of weather coverage plans.

“WeatherBill is offering a range of events that I think are important and some farmers are going to think of this as a valuable product,” Massey said.

Massey added that in a boom year like this farmers with a little extra cash in their pocket might be willing to roll the dice on added protection against a temperamental Mother Nature.