Arbol, the provider of marketplace technology supporting parametric risk transfer or weather insurance and that utilises smart contracts, has provided the backing for a new crop yield cover whose parametric triggers are based on the throughput measured by machinery sensors.
The use of sensor technology in creating new parametric risk transfer, insurance and reinsurance product categories is a significant opportunity for the sector.
Arbol has been forward-looking in its development of parametric risk transfer solutions so far, but its latest initiative takes this to a new level, utilising the sensors that are integrated into farming machinery.
Arbol has partnered with agricultural company PURIS to back its Yield Coverage Program for the dry pea crop, with the program set to be rolled out across the United States to all PURIS growers this year.
The PURIS Yield Coverage program will make use of proprietary financial technology from Arbol alongside the on-farm machinery sensors.
Arbol’s technology platform will monitor field activities to determine when a yield loss occurs, based on the data from the machinery sensors and then enable an automatic payout for those covered, with no claims process thanks to the parametric triggers used.
“We are excited that Arbol’s proprietary technology will power a program that will benefit growers throughout the country,” John Coleman, Arbol’s Head of Structuring said. “PURIS growers who sign up for Arbol backed Yield Coverage can now have peace of mind that their yields will be protected and that they will receive a rapid, effortless payout in the event of loss.”
“Our goal at PURIS has always been to push the boundaries of what’s considered possible through how we breed varieties, grow crops, and make the food that feeds the world,” explained Jordan Atchison, PURIS Grains President. “Adding Yield Coverage to the offering ensures that any PURIS grower, anywhere in the country, can plant PURIS peas with confidence. That benefits everyone on our path to a plant-strong planet.”
As the sensors used for the parametric trigger for this crop insurance, or crop risk transfer, product are integrated into the agricultural machinery used for harvesting, measuring their actual production volumes, you might think there could be an element of moral hazard associated with the payouts, but Arbol told us this has been considered and they feel mitigated.
A lot of sensor based parametric trigger development results in questions over the potential for basis risk related to moral hazard, which in particular is deemed a concern where parametrics move beyond weather and catastrophe risks thanks to the use of advanced technology.
Arbol told us that growers insured by the program are required to follow a specific agronomic prescription, mandated by PURIS for the yield program.
John Coleman, Arbol’s Head of Structuring, told us, “Each field activity is validated using live machine data from the field, like field boundaries for planting, planting dates, planting rate, planting depth, field boundaries for spreading (inoculant), spreading dates, spreading rates, then finally harvest field boundaries, harvest dates, harvest speed, and second-by-second yield measurements aggregated to the harvest field boundaries.
“So, the yield coverage involves more than just a final yield measurement during the harvest which could be tampered with, but actually measures and ensures every field activity and component of the agronomic prescription is followed in order for coverage to remain in force.”
On top of this all of the agricultural production has to be delivered to PURIS facilities according to the production agreement that they have in place with their growers.
This means that certified production numbers will be used to corroborate the original sensor readings from the field yield monitor, providing a secondary point of validation for the triggers, but presumably not slowing down the payouts.
Covered growers are only insuring up to 75% of their county-level yields, which means there is a substantial deductible in place before growers are paid out through this crop yield insurance, which Arbol noted creates a disincentive for attempting to report a yield loss.
Modern parametric triggers, using sensors integrated into machinery, equipment and infrastructure or buildings themselves, promise to greatly expand the parametric insurance, reinsurance and risk transfer market.
As sensors become ubiquitous in their availability and proliferate around the globe, while becoming cheaper all the time, the opportunity for structuring intelligent and responsive parametric risk transfer solutions also increases, something Arbol has clearly embraced.
It’s important to think through the products, before embarking on creation of new parametric risk transfer structures linked to sensor data, particularly for integrated insurance where the sensors are owned by a third-party.
But if approached correctly, these new parametric triggers can provide far more valuable, integrated insurance protection that responds precisely when the covered party needs the protection.