CROP Risk Underwriting (CRU) and Hillridge Technology today launched a new Weather Index Insurance product designed to protect farmers financially against adverse weather such as drought, cold snap, heat stress, and excess rain at the wrong times.
A form of “parametric insurance”, it pays based on weather data from a nearby weather station or grid point, and predetermined calculations up to a limit.
“Weather Index Insurance has been available to large agribusinesses for many years, but with Hillridge’s technology, we are excited to bring this important risk management tool to within reach of Australian farmers,” CRU director Peter Book said.
“Weather Index Insurance provides opportunities to cover more perils than traditional indemnity-based insurance. It is transparent and is often faster to pay out than traditional insurance. Any agricultural enterprise in Australia which could be negatively affected by the weather can buy cover.”
Mr Book said one of the challenges the insurance industry faced in the Australian agricultural sector was access to sufficient data.
“There isn’t the data available to construct the bespoke insurance covers that are seen in overseas markets. What we do have though is very good weather data,” he said.
“We are trying to use the weather data to provide a risk management tool to help farmers lessen the financial impact of an ill-timed or excessive rainfall or temperature event as measured at a weather station or calculated for a grid point.
“It could be too little rain, too much rain, or it could be too many days of low temperature or too many days of high temperature.”
Mr Book said a key element of Weather Index Insurance was that farmers could tailor their cover to suit their individual needs.
“The threshold, the period and how much you want to get paid are ultimately set by the producer, not by the insurance company. It is possible for the producer to determine their own risk period and the point where they start losing money,” he said.
Hillridge chief executive officer, Dale Schilling, said following the recent drought on Australia’s east coast, the need to manage weather risks was top of mind for many farmers, who were seeing increasing volatility in the usual ups and downs of seasonal conditions.
“Drought is a big problem, but farmers worry about other extreme weather too–– frost, heat stress, and too much rain at the wrong time, like just before harvest. Traditional crop insurance often only covers bushfire and hail, but not the risks farmers are more exposed to,” he said.
CRU’s Dai-Kyu Kim said the launch of the insurance product was timely as this year many broadacre farmers were looking at their first good harvest in many years due to drought.
“Ominous on the horizon are harvest rains, literally “raining” on their parade. The Bureau of Meteorology moving to La Nina ALERT suggests increased risk of a repeat of 2010/11 when, for example, durum wheat was severely downgraded nearly $100/tonne. In some cases losses were $300/hectare. While this is not common, the La Nina ALERT means the chance this year has just increased,” he said.
Source: CRU, www.cropriskunderwriting.com.au/buying-cover