In today's world, farmers have to pay insurance companies to insure themselves against foul weather, the reason for 90% of lost crops. But the process of filling out claims can be a lengthy and time-consuming process. Additionally, the payouts for claims is very infrequent (about 3% to 10%) in the farming industry.
This way of insuring the farming industry is evolving with The Climate Corporation, a new insurance agency of sorts which helps farmers manage their business from adverse climate change. The San Francisco-based start-up, announced Thursday that it's raised $50 million in a Series C round, led by new investor Founders Fund, including participation from existing and new investors Khosla Ventures, Google Ventures, NEA, Index Ventures, Atomico, Glynn Capital, and Western Technology Investment.
The new financing follows a $42 million round in February, bringing the company's total financing raised to date to over $110 million, since the company -- which changed its name from Weatherbill last year --was founded in 2006. With 150 employees already, The Climate Corp is using the funds to hire more than 50 quantitative researchers, data scientists and software engineers. It's also seeking to bring its service internationally to agricultural-heavy countries, like Canada, Austalia and Brazil, said Greg Smirin, The Climate Corp's COO, in an interview with me.
At the moment, The Climate Corp has thousands of farmers (Smirin wouldn't disclose how many exactly) who pay anywhere from $5,000 to insure parts of their property, or about 150 acres, to $500,000 to insure 15,000 acres. The way it works is the farmers work with insurance agents to determine their yield (how much product is produced per acre). The Climate Corp then offers them a number of ways to insure that yield from bad weather. The Climate Corp is focused primarily on insuring soybeans and corn, which has a significant market, said Smirin. There's over 170 million acres of soy and corn in the US, he said. And, farmer sell about $100 billion worth of corn and soy each year.
The addressable market for insurance in the soybean and corn market is roughly 6% of that amount, said Smirin.
In those markets, The Climate Corp will typically cover about $250 to $300 per acre whereas the farmer will pay about $35 per acre for that kind of insurance. If there is foul weather, The Climate Corp pays out, but if the weather is fine, it keeps the premium. Smirin wouldn't disclose what the total premium it collected last year, what percent of the premiums the company kept, and what it paid out. He did say, however, that last year most insurance companies paid out 100% of their premium due to the foul weather. In other years, they keep about 80%. Smirin also wouldn't disclose how much premium it's kept and paid out in prior years.
While The Climate Corp is focused on soybean and corn, it's also targeting the overall farming market, which includes livestock, and other produce, like fruit and wheat. Farmers sell about $450 billion in farming produce in the U.S., and about $3 trillion globally, said Smirin. The addressable market for The Climate Corp is as low as 3% to as high as 8%, depending on product and the weather risk.
The innovation that The Climate Corp is bringing to the farming industry is that in the old days (or pretty much today), farmers have to deal with proving that the weather ruined their crops. In the case of The Climate Corp, a farmer only has to prove that he/she is a professional farmer. "There’s no claims," said Smirin. "And there are automatic payouts based on remote sensing." What this means is that if there's bad weather on an acre that's been insured, it doesn't matter if the acre was damaged, the company's technology can monitor the weather, and a payment is automatically sent based on that information alone.
"We pay out solely based on weather," said Smirin.
The early days of The Climate Corp
The Climate Corp has had an interesting beginning. Back in 2006, it started as a place where a number of types of industries could insure themselves against the weather. There were concert promoters insuring themselves against bad weather or sports tournaments, like the US Open, insuring themselves against the weather to ski resorts and construction companies insuring themselves against the weather. But what the team found was that the recurring customers were in the agriculture industry. To that end, the team began to concentrate solely on farming. The United Nations estimates that 45% of the world's workers are farmers, David Friedberg, the founder and CEO, is quoted as saying in a release.
See Friedberg in 2007, when I first got him to talk about Weatherbill, in the early days.
(Image source: wunderground.com)