Mitigating Freeze Risks in Agriculture: The Power of Parametric Insurance

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Sep 29, 2023
By Arbol

Severe and unexpected climate events pose significant challenges to agribusinesses – particularly those that usher in low temperature or freezing conditions which can lead to substantial losses up and down supply chains. In the face of such uncertainty, parametric insurance offers a sound mitigation strategy for tackling frost and low-temperature risks.

Recognizing the Impacts of Low Temperature and Freeze Risks

In April 2021, the wine industry in France suffered an “estimated 2 billion euros ($2.4 billion) in economic damage” after a severe two-day frost event decimated grapes throughout the Champagne and Burgundy regions.

In March of this year, 90% of Georgia's peaches were destroyed after freezing temperatures swept across the state.

Georgia peach historical data from USDA RMA

In May, farmers throughout Connecticut contended with a frost that ravaged blueberry, strawberry, peach, grape, and cherry crops, as well as Christmas Trees. 

To be sure, low temperature and freezing conditions don't always translate to immediate crop loss. Unseasonable conditions can also affect plant growth and alter agricultural timelines – all of which can cause supply chain disruptions that drive up production costs and consumer prices. In light of these risks, it's prudent for agribusinesses to explore risk mitigation strategies

Filling the Gap: Parametric Insurance for Low Temperature and Freeze Risks

Parametric insurance offers rapid and transparent payouts based on predefined parameters or indices – e.g., temperature or frost days – rather than manual loss assessments.

Parametric insurance is tailored to specific risks like low temperatures. When the agreed-upon weather parameter exceeds or falls below the set threshold, a payout  – for a previously agreed upon sum – is initiated without any hassles, delays, or disputes.

Hypothetical Case Study: Applying Parametric Insurance in Low Temperature and Freeze Risk Management

To illustrate the utility of parametric low temperature insurance, consider a hypothetical vineyard located in a region known for its risk of freezing temperatures. If the vineyard owner takes out a parametric insurance policy with a specific trigger of, say, temperatures dropping below -2°C for more than two consecutive nights, the policy would pay out if this event occurred – and would not be contingent on an adjuster’s assessment of physical damage to the crops.

Once data becomes available to confirm a qualifying event, a rapid payout is disbursed to the policyholder, providing a financial backstop for lost revenue due to unexpected weather and climate events. Having this piece of mind enables agribusinesses to grow and sustain their businesses unencumbered by financial climate risks

To learn more about parametric solutions to protect business revenues from low temperature or frost risks, click here.

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