Frost — Descartes
Group 8

Parametric Insurance Case Study: Frost Risk for California Almonds

Client Need: An almond orchard in California is seeking coverage against frost during the 4-6 critical week blooming season in early February and March. In previous years the occurrence of frost prior to petal fall resulted in full losses for several fields, with significant effects on production volume, business relations and revenues.

Pain Point: The client’s traditional cover is unable to meet their precise needs in terms of peril and risk period, and does not reflect the uneven exposure of each field location and geographic attributes. Without proper coverage in their traditional policy, the client was forced to absorb previous losses due to frost, including a revenue loss of $14M and 3 major business contracts in a single year.

Our Solution: A parametric cover set to the client selected risk period and structured to payout if temperatures drop below predefined thresholds. Before the cover starts, we use existing stations in the field vicinity or install weather stations at agreed locations on-site and set up the payout grid. In this case, if the temperature reaches 28° F (-2.2° C) they receive 45% of the limit, and for 27° F (-2.8° C) 100% of the limit. We monitor minimum temperatures on a daily basis to detect a frost event. The client also shares access to the data and uses it as a prevention tool.

The Result: A highly customized solution, with exact dates chosen by the client, and on-site weather stations able to distinguish field specificities and minimize the basis risk.  When a frost event occurs, the client is paid out immediately at the end of risk period. The transparent structure ensures the client understands how much they will be paid for each degree drop and supports their financial resilience in the event of frost.