Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Climate Corporation pay out on 80% of corn crop weather insurance policies


The Climate Corporation (TCC), a provider of weather insurance products aimed at the agriculture industry, has announced some updates to their Total Weather Insurance (TWI) product for 2013. As well as the product update information, The Climate Corporation have provided some insight into just how bad the drought of 2012 has affected farmers in the U.S. by revealing some data on the number of claims their TWI product has supported so far this year.

The U.S. has suffered one of the worst droughts in living memory this year, with crops expected to yield well below the average and farmers across the southern and mid-west states impacted. Insurance industry observers have been predicting an insurance industry loss well above $10 billion to pay for the impacts of this drought. As a provider of weather linked insurance products, which pay out based on actual weather conditions rather than on a claims assessment, the numbers from The Climate Corporation should give an insight into just how bad the loss could get.

TCC says that the 2012 growing season is turning out to be one of the worst and most extreme on record in much of the U.S. The year started with the hottest March ever, which meant that farmers in many areas planted corn weeks earlier than usual. Then continued hot and dry weather destroyed crops in many areas of the Corn Belt as they moved through some of their most vulnerable phases. The June-July period was both the hottest and driest since 1936 across the U.S. Corn Belt as a whole, with 83% of the Corn Belt experiencing moderate to exceptional drought by the end of August.

The result of this drought and extreme weather is that 80% of all the 2012 TWI corn policies have resulted in a payout to policyholders from TCC to compensate for weather related yield shortfalls. TCC says that the USDA crop progress reports validated these payouts, helping to show the validity of weather-linked insurance rather than indemnity claim assessed policies.

With an average payout ratio of 80% some U.S. States fared much worse. In Iowa, where 18% of the corn crop was rated ‘Good’ or better in the USDA’s September 24th Crop Progress Report, 90% of all TWI corn policies written in the state have resulted in a payout to make up for financial loss due to bad weather. And in Illinois, where just 7% of the corn crop was rated ‘Good’ or better in the September 24th Crop Progress report, 98% of all TWI corn policies have resulted in a payout to the policyholder.

“Growers get an average of forty paychecks in their lifetime and each one needs to count,” said David Friedberg, founder and CEO of The Climate Corporation. “Growers with bad yields and good federal crop insurance coverage this season – but no Total Weather Insurance – are going to survive the year. But their low yields will have cost them an opportunity to capitalize on record commodity prices and really get ahead. Growers who bought TWI this year to complement their federal crop insurance locked in some of that profit potential that existed at the start of the season.”

The rate of payouts on TCC policies is a good indicator of just how bad the growing season has been and how extensive crop insurance payouts will be for the whole season. 2011 resulted in $11 billion of insured losses for crop re/insurers, 2012 looks likely to be even more impactful as far as losses go. Currently estimates are for between $5 billion to $12 billion of re/insurance losses, but if the 80% of policies receiving payouts from TCC is anything to go by, we could see upwards of the $12 billion upper estimate.

It’s very difficult to estimate how much of the industry loss in 2012 will be picked up by federal crop insurance and how much will trickle down to the reinsurance market. It’s beginning to look like the estimates which have been made to date may be increased as the scale of insured crop losses becomes clearer as we move towards the end of the year. Climate Corporation’s TWI products are reinsured by Swiss Re Corporate Solutions, a change from before where Nephila Capital had backed the programme in previous years, so all of their losses will trickle into the reinsurance market.

The Climate Corporation have also announced some changes and updates to the Total Weather Insurance product for 2013. They said:

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

The Climate Corporation continually enhances its TWI program by working closely with an advisory panel of top university agronomists from around the country to understand the latest research on the interactions between weather and yield, and by engaging directly with growers and their agents. The program for the 2013 corn and soybeans growing season has been enhanced in two key areas:

More adaptive coverage: TWI 2013 features a more flexible coverage structure, further ensuring that corn and soybean crops in the field are protected from adverse weather events during the right times throughout the growing season.

Growth Stage TrackerSM: New for the 2013 growing season, Growth Stage Tracker calculates coverage dates for key weather perils by tracking the weather-driven progression of the crop in-season. With Growth Stage Tracker, TWI coverage is adaptive to a broader range of extreme weather scenarios.

Soil Moisture TrackerSM: Soil Moisture Tracker was introduced for the 2012 growing season to provide daily field-level assessments of yield-impacting soil moisture conditions for each 2.5 x 2.5 mile Precision Rainfall Grid. Enhancements for the 2013 season include setting an initial soil moisture value right at the beginning of the growing season, and use of an enhanced methodology – based on leading university research – for calculating daily changes to the soil moisture value.

More precise weather measurement with Precision Temperature GridsSM: Where TWI 2012 utilized a single temperature station per TWI policy, TWI 2013 tracks temperature values based on 2.5 x 2.5 mile Precision Temperature Grids. Each Precision Temperature Grid utilizes data from up to 3 nearby, on-the-ground weather stations — adjusted for grid-specific geographic characteristics such as elevation or proximity to bodies of water — to calculate daily temperature conditions. Precision Temperature Grids are designed to provide more precise temperature values for a grower’s location than is possible with point-based temperature reporting.

“When modeling a complex biological system such as the rate of crop growth in the field, better data resolution means better results,” says Jeff Hamlin, Director of Agronomic Research at The Climate Corporation.  “With TWI 2013, we are incorporating more localized temperature data, field-level soil characteristics, grower-reported seed variety information, and in-season weather conditions to further enhance our understanding of the conditions present in any given field. As a result, we can better track crop development, adjust coverage periods, and ultimately improve the protection we provide to growers.”

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.