The unique approaches developed by ACIC and its partners will have application to IPM and BMP risk reduction beyond the reduced tillage and nitrogen optimization pilots. During the first quarter of 1999, ACIC financial risk management products expected to be available for the 1990 season through crop insurers. By March of 1999, it became apparent that ACIC crop insurance company partners would not have these products available for farmer purchase. Working with Allan Walter, Ph.D., President, Agricultural Risk Management North America, Inc., ACIC decided to pursue two novel approaches, warranties and weather derivative contracts, in addition to its original insurance policy strategy. The insurance contract describes the insured risk, defines what losses are covered and indicates the premium to be paid to the insurer.
Insurance is a highly regulated industry.
Insurers may be public or private stockholder-owned companies, or Mutuals, owned by the policy holders. A warranty assures a result or a level of performance such as a given level of crop yield if the farmer utilizes a package of inputs or services. Warranty contracts specify what result or performance is guaranteed and what relief is granted if the outcome is less than that warranted. Warranties and weather derivative contracts otter ACIC an opportunity to develop product concepts that are not subject to the traditional crop insurance industry's preoccupation with federally subsidized insurance products that cover multiple perils, e.g., flood, drought, fire, pests, etc., over large geographic and crop market segments. While this route still requires active participation of a licensed insurer, an MGA is less highly regulated and can be formed in less time and with fewer expenses than a new insurance company.