According to the National Climatic Data Center, damage to crops was the primary driver of loss in three of the top five costliest U.S. weather disasters in the past 30 years. A repeat of the 1988 summer-long drought or the 1993 Midwestern flood could cost crop insurers billions of dollars. In fact, more than 90% of crop losses are caused by adverse weather events, including drought, flood, hail, freeze, and windstorm.

Award Winning Methodology

Because traditional methods that rely on historical losses have proven unreliable in quantifying and managing this complex risk, AIR released the industry’s first Multiple Peril Crop Insurance Model in 2007. The model is today being used by all leading crop reinsurers and a growing number of crop insurers. With good reason; using the same underlying methodology behind the model’s crop yield distributions, AIR has won the FACTSim (University of Florida's Financial and Agricultural Commodity Trading Simulation) Futures and Options Trading Competition four out of the past five years.

Agricultural Weather Index Isolates Weather Effect

The model relies on AIR’s Agricultural Weather Index (AWI), a county- and crop-specific weather index used to assess the overall quality of the growing season. The AWI leverages the Daily Precipitation Analysis and Daily Temperature Analysis of NOAA’s Climate Prediction Center.  The AWI accurately separates the impact of technological change on historical crop yield data to isolate the effects of weather. In addition to weather variables (precipitation, temperature, growing-degree days), the AWI accounts for soil conditions (available water capacity, surface moisture, runoff) and crop-specific parameters (water requirement at each stage of growth, planting dates, resiliency to adverse weather conditions). During the growing season, the AWI provides a highly reliable estimate of the expected yield at harvest on a county-by-county, crop-by-crop basis.

Designed to Meet the Needs of Crop Insurers and Reinsurers

AIR’s U.S. Multiple Peril Crop Insurance Model generates a 10,000-event stochastic catalog of potential future county yield outcomes and associated price scenarios that reflect the most recent volatility in commodity prices. The model captures yield correlations both spatially and between crops to account for widespread weather effects. Once policy conditions are applied to the modeled county yield distributions and modeled prices, portfolio gains and losses can be reported on a pre- or post-Standard Reinsurance Agreement basis and can be aggregated to state, regional and nationwide levels.

AIR currently offers a multi-peril crop insurance model for:

• United States

Listed below are additional materials of interest to companies exposed to crop losses from a variety of weather-related perils: