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How Weatherindexed Production Insurance Works

Bees don’t fly much when it’s cold so honey production suffers. The weatherindexed crop insurance Rick McConnell, a consultant, and Watts and Associates have developed would give beekeepers the option to insure against cold at specific times of the year.

A farmer could insure against too much or not enough rain or heat for the whole growing season or a specific period.

McConnell walked KAP delegates through an example based on a hay producer. Say the 50-year average June rainfall at the weather station closest to the farmer was 78 mm, the high was 268 mm and the low, 3.4 mm. The farmer could get a policy that pays out at whatever level of rainfall he or she sets. The farmer also decides how big the payout will be. Naturally the higher the payout and the more likely a payout is, the higher the premium.

In McConnell’s example the maximum payout was $50,000. A payout would be triggered if there were more than 140 mm of rain in June, with the maximum payout occurring if there were 250 mm or more.

In this case the premium was 4.86 per cent or $2,400, McConnell said.

One of the biggest hurdles before introducing weatherindexed insurance in Manitoba is the lack of weather stations, McConnell said. Manitoba only has 42 equipped to meet the program’s needs; Alberta has 233.

And each station should have 50 years of weather data, although a model can be used to create it where it’s lacking, he said.

Weather-indexed insurance is not a new idea. Airports and ski hills have been able to buy it for years to offset their weather risk.

“Theoretically you could even insure asphalt because we’re not going to check,” McConnell said. “You’re paying a premium for an investment.”

While that gives farmers the option to insure production that isn’t well covered by conventional crop insurance, the downside is compensation might not be paid when the farmer suffers a loss, said Neil Hamilton, CEO of the Manitoba Agricultural Services Corp.

“That’s the essence of why I don’t think it’s good insurance,” he said. “It is like speculation in that you might get a payment when you don’t need one and you might not get a payment when you need one.”

Manitoba and Alberta crop insurance already use weather index derivatives to offer insurance against frost and to ensure forage and pasture production.

“We’ve never been able to make that work to a great level of satisfaction,” Hamilton said.

Meanwhile, a number of KAP members have volunteered to test the new web-based insurance program before it’s offered commercially.

McConnell will provide an in-depth demonstration during KAP’s annual meeting in January. [email protected]

About the author

Reporter

Allan Dawson

Allan Dawson is a reporter with the Manitoba Co-operator based near Miami, Man. Covering agriculture since 1980, Dawson has spent most of his career with the Co-operator except for several years with Farmers’ Independent Weekly and before that a Morden-Winkler area radio station.

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