Consider a Spring Multi Weather Certificate before you buy Fire and Hail Insurance.

Jonathan Barratt

June 7, 2021

Farming is the only business, that we are aware of, where producers buy inputs at retail prices and sell their output at wholesale prices. It’s no wonder that we continue to witness diminishing returns from an industry that is so vital to our existence. Therefore, it is important that each input needs to be considered for its appropriateness and cost. Crop insurance is no exception. But, so often is the case that growers simply cut a cheque each year without consideration. Having a more diversified approach in your insurance strategy with a Spring Multi Weather Certificate could save you costs whilst offering more protection.

A recent Farmer survey from the National Farmers Federation (NFF) suggested that annually: 

  • 46% of farmers crops remain uninsured, 
  • 81% suggested that rainfall deficit/drought was the single most peril yet,
  • 93% fail to take insurance against it. 

Running a business without insuring you’re your single most risk leaves not only the farmer exposed but the entire value chain. Is it time to adjust the thought process?

Around June and July growers start to look at anticipated yield for harvest and post-harvest indemnity style insurance contracts. Contracts that cover Fire and Hail and if you are lucky Frost. 

Perhaps it is time to reconsider the value placed on these covers and should a proportion of this budget be spent on covers that hedge yield and profit!

August and September are deemed the “money months” for broadacre farmers, where the crop yield is determined. It is around springtime that the crop is most susceptible to environmental stress as it experiences rapid growth due to the plant’s reproductive stage. Environmental stresses such as the lack of moisture, high and low temperatures before and after anthesis all have the greatest impact on yield. Phenologically speaking, a decrease in grain numbers occurs when there is moisture stress 10 days before head emergence, heat stress during flowering and grain fill, and finally, frost damage occurring 10days after anthesis. 

To hedge against these perils makes perfect sense and can be simply done by implementing CelsiusPro’s Spring Multi Weather Certificate for a premium that is less than half the cost of a spray. 

A Spring Multi Weather Certificate looks through an agronomic lens and pinpoints the crop’s susceptibility to yield loss. There is a lot happening in this tiny window that is detrimental to the crop’s yield and your ultimate return. So, what would be the cost to insure against this risk?

Experience suggests growers use weather certificates to insure against production risk and profit. In order to structure a cover that is suitable for the growers and reinsurance provider, the consideration of “willingness to buy” and “willingness to provide” needs to be assessed. The general rule of thumb is that grower budgets for insurance premiums are between $10-$20/ha whilst reinsurance providers are generally willing to offer liquidity between 5-10% of the sum insured, so a happy medium can always be found. Below is a Spring Multi Weather Certificate strategy for Hyden WA which covers Heat, Frost, and Spring Rainfall Deficits for a premium value of $7/ha for $100/ha worth of cover (7%).

spring multi weather certificate
Heat, Frost and Spring Rainfall Deficit payouts for a Spring Multi Weather Certificate at Hyden WA

Each dot represents a payout which the farmer would have received if this particular Spring Multi were bought. Over the last 100 years this weather certificate has paid out 21 times so it has a return period of 1 in 5 years. When you look at 100yrs of history it provides a good sense of what has happened and the parameters and perils that should be looked at for the season. The Spring Multi offers an affordable cover that growers can weight according to their risk profile and budget for the season. The certificate can be taken out individually or as a multi depending on how the season is panning out. All the parameters can be adjusted to suit profile and budget, ie if your more worried about frost over the other perils, you can simply increase the sum insured for this peril to boost frost payouts.

The hope and pray method for farming, particularly in August and September should be reconciled to yield and insuring against it. Farming is a business and the process to decide on insurance should be the same as for any input. According to the industry, over 90% of claims are related to Hail losses, and approximately 5% are due to Fire. Check out the Hail archive at the Bom to see if your region has suffered from a Hail event. This is a great archive where you can assess the need more accurately for Hail cover via grid or regional data for the last 110 years.

So, before simply cut a cheque for Fire and Hail spend some time to run through the numbers and perhaps look to consider insuring other events that are out of your control such as frost, moisture, and heat.

CelsiusPro believes that the way forward is allocating some of your Fire and Hail premiums to other more frequent risks to your operation – spreading costs and covering more risks is a climate-smart decision that more farmers should begin to look at.

  1. Tim says:

    Really interesting stuff here! there’s definitely a need to re-consider how farmers purchase their insurance.

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