OREGON STATE UNIVERSITY

Program to assist crop insurance program, provide weather and climate data

11/08/2010

CORVALLIS, Ore. – An innovative climate and weather monitoring system developed at Oregon State University will soon be used to help underwrite and verify claims of crop losses, both to improve services to farmers across the nation and prevent abuse in the $79 billion crop insurance program.

The project, a collaboration of OSU and the Risk Management Agency of the U.S. Department of Agriculture, began last month.  It includes a $1 million, one-year grant from the agency to OSU’s PRISM Climate Group.

Systems will be developed to help adjust farmers’ crop losses and improve the agency’s ability to underwrite a sound crop insurance program. This will produce more accurate and reliable loss adjustment, better policy service, and significantly lower costs to taxpayers.

“The vast majority of American farmers follow the rules and we want to help them by keeping their costs for crop insurance as low as possible,” said Kirk Bryant, deputy director of strategic data acquisition and analysis at the Risk Management Agency.

“Moral hazard is an issue in all lines of insurance,” Bryant said. “But since crop insurance is taxpayer funded, and with more than one million crop insurance policies in force and billions of dollars in crops insured, the Risk Management Agency is particularly sensitive to taking strong measures to assure that everyone plays by the rules.”

“Moral hazard,” officials say, occurs when an insurance policyholder does something that significantly increases their chance of having a crop loss, or exaggerates the size of the loss.  This does not always imply illegal actions; for example, after purchasing insurance, a producer may not follow generally accepted production practices. But, in extreme instances, it may involve fraud. 

OSU has developed one of the nation’s most sophisticated and innovative weather and climate analysis systems, which considers multiple factors such as weather, location, elevation and other issues. It can monitor weather and climate far more precisely than most systems, and the new support from this initiative will allow further improvements.

“With this new funding, we will move from monthly averages to a daily analysis of weather and climate over the entire nation,” said Chris Daly, an OSU professor of geosciences and director of the PRISM program. “This will produce about 30 times the data and maps we now have, improve long-term climate monitoring, incorporate radar data, factor in individual weather events and make other improvements.”

Crop insurance is a major industry in the U.S., sold and delivered by private insurance companies in collaboration with the USDA Risk Management Agency. These programs help farmers insure primarily against natural disasters and weather events, such as hail, wind storms or floods, which can partially or totally destroy their crops. Some of these events can be extremely local – a passing thunderstorm may drop hail that destroys one farmer’s crop while leaving others untouched a mile away.

Using PRISM, the agency believes that it will be able to more quickly substantiate weather events and producer claims, which can expedite the process and save money. It’s far more precise than data the agency has used in the past.

The improved weather and climate data, Daly said, will also help insurance companies determine risk levels more accurately. Instead of assuming that everyone in one county, for instance, faces exactly the same weather risks, the system might suggest that some lands at slightly higher elevation are more subject to frost damage and others less likely, allowing insurance rates to be set fairly and appropriately.

Daly said many people don’t appreciate how much weather and climate can vary in short distances based on terrain and other factors. The PRISM system – which stands for Parameter-elevation Regressions on Independent Slopes Model – is a sophisticated approach that takes these topographic variations into account and determines their impact on local weather and climate.

It has attracted interest from researchers all over the world.

“In the long run, we hope for this collaboration with OSU to grow in future years and offer even more service to farmers,” Bryant said. “We want a strong educational component that will help farmers better understand their local climate, the optimal time to plant crops, what might grow best based on the climate, how things are changing based on global warming, and provide other support systems.

“Modern farmers are actually pretty savvy at using these tools,” Bryant said. “And their interest will only increase as more farmers get into specialty crops and operations, such as local produce markets and organic farming.”

Daly said he hopes to make PRISM more user-friendly, so that novice computer users can easily make a few clicks and go directly to the local weather or climate information they are looking for. Assisting in that will be OSU’s Northwest Alliance for Computational Science and Engineering, led by Cherri Pancake, a pioneer in the design of web sites that simplify the delivery of large amounts of information to users with varied backgrounds.

This type of precise weather and climate data may also soon be used more broadly by other insurance companies as they see its value, officials said. The data obtained by his agency will be shared across the U.S. Department of Agriculture, Bryant said, and should form the basis for other applications and cost savings.

OSU officials met recently with USDA administrators to discuss a range of opportunities to expand services of this type of American farmers, through programs in the OSU College of Science, College of Engineering, College of Agricultural Sciences, Agricultural Experiment Station and the university’s Sun Grant initiative.