The Climate Corporation’s hyper-local weather insurance

The business of risk

by McKenzie Funk

A decade ago, when David Friedberg was in his 20s and a product manager at Google, his daily commute took him past a bike-rental business on San Francisco’s Embarcadero. When the sun was out, he noticed, the shop was open. When it rained—and tourists stayed indoors—the shop was closed. Its business was almost entirely dependent on the weather. And that got him thinking.

Companies subject to the whims of the weather could be more stable—and more profitable—if they had a better way to manage the risk of the next rainstorm. Friedberg has pointed out that 70 percent of American businesses—and $3.8 trillion of the national GDP—are sensitive to meteorological conditions. Even though weather channels and climate models give us an increasingly refined picture of what’s to come, financial instruments to manage weather-related risk are few. And therein, Friedberg realized, lay a business opportunity.

So in 2006, after he and his colleague Siraj Khaliq had left their jobs at Google, they started their own company, which they called Weatherbill. Their goal, Friedberg recalls, was to “democratize weather derivatives”—the financial instruments used by the big, deregulated energy utilities (including Enron) to hedge their sensitivity to extreme cold or heat, or to too little or too much rain. Weatherbill’s first product was a kind of weather micro-insurance for the rest of us. Worried that rain would ruin your wedding day? Running a snowplow company and concerned about the possibility of a warm winter? You could go to Weatherbill’s website and buy a custom policy.

Early on, however, Friedberg and Khaliq realized that the big opportunity lay in agriculture. Unpredictable weather has been a bane to farmers ever since they first planted wheat and barley in the Fertile Crescent. But now climate change has amped up the risk. “The most pronounced change isn’t slow rise of temperatures over many years,” Friedberg says. “It’s the size of the variance year to year and the lack of predictability. A farmer isn’t thinking, ‘Okay, it’s going to be 1.3 degrees warmer in a few decades.’ He’s wondering whether it’s going to be dry or wet, and how much corn he’s going to get. How much seed to plant? It’s becoming impossible to predict.” So great was the need—and the market—for risk management in agriculture that it gradually became the company’s sole focus.

In 2011, the company changed its name to the Climate Corporation and adopted the lofty mission “to help all the world’s people and businesses manage and adapt to climate change.” Friedberg, raised in Los Angeles, far from farms and farmers, and schooled in astrophysics at Berkeley, was reinventing crop insurance by bringing the organizing principles of Silicon Valley—instant gratification, hyper-customized products—to the Corn Belt.

The U.S. federal crop insurance program has been the standard-bearer for decades. Started in the 1930s to help farmers recover from the Great Depression, it has been a crucial yet relatively blunt instrument. Most of its policies are based not on weather conditions but rather on yield; if a farmer’s annual production of corn or soybeans falls far enough below the long-term average, there’s a payout.

The Climate Corporation catapults this decades-old system into the information age. Its flagship product, sold via local insurance agents but powered by supercomputer, helps individual farmers close the federal “insurance gap,” delivering them customized policies based on production goals and local weather risks. Farmers can choose coverage on a field-by-field basis, and they don’t have to submit a claim when bad weather hits because the Climate Corporation already knows about it.

There is great power in big data. That’s the company’s pitch to farmers and investors alike; in order to provide its insurance products, it has amassed what has become one of the world’s most sophisticated data sets for weather. Much of the data is public information, but the Climate Corporation has woven it together. They have Doppler radar images from the National Weather Service, Landsat images and topography maps from the U.S. Geological Service, and crop coverage maps from the Department of Agriculture. The Climate Corporation has negotiated access to weather stations run by universities and farming co-ops, and it has used Freedom of Information Act requests to unearth data that was theoretically public but hard to obtain. In one case, the Climate Corporation acquired a 10 x 10-meter-resolution national soil survey from the USGS that was so big it had to be physically shipped to San Francisco on hard drives. In 2011, its scientists boasted they had compiled 50 terabytes of raw data—the equivalent of hundreds of new MacBook Pro hard drives. That number has grown fortyfold every year since.

With so much data at its disposal, the Climate Corporation has moved into the agricultural consulting business. Today, Midwestern farmers can drive through their cornfields with an app from the Climate Corporation in their pockets—part of its new, $15-per- acre Climate Pro advisory service. Climate Pro harnesses the company’s massive dataset to provide cost-saving advice specific to each field, granular down to 100-yard resolution. Farmers can use it to decide when to plant, how much fertilizer to use, or when to look out for pests—in both the short and long term. “I can see all my fields on a Google Map,” explains beta tester Dave Nelson, a fifth-generation corn and soybean farmer in Webster County, Iowa. “Let’s say I got rain last night. I can see exactly which field got how much, and what the winds are doing.” It tells him where he’s needed most.

In 2014, the Climate Corporation was authorized to sell its own hyper-local, hyper-tailored breed of federal crop insurance. It offers electronic claims; “field level” tracking via phone, tablet, or computer browser; and automatic notifications when crop loss is likely. But the company’s biggest step—controversial in some quarters—was its October 2013 sale to biotech giant Monsanto for nearly a billion dollars. For Friedberg, it’s a chance to use Monsanto’s cash and footprint to take the Climate Corporation’s breed of data-driven risk management global, from smallholder
markets in India and Africa to large-scale operations in Brazil. The products—text-messaging services, satellite imagery, advisors such as Climate Pro—will vary from country to country. But the market is huge. There are 2.5 billion farmers in world, and they are all sensing a change in the weather.

McKenzie Funk is a Seattle-based journalist and author of Windfall: The Booming Business of Global Warming. Mac is a founding member of Deca, a global journalism cooperative.

Illustration ©Daniel Horowitz

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