"We had a few mentions of WeatherBill early in this blog's life but I couldn't figure out how to make money off their output, it looks like a product made for selling, not for buying. Links below."I purloined the "product made for selling, not for buying" bit from an insurance man who evaluated every insurance product on the basis of whether he would use it to insure his own business or if he would underwrite it for his agents to sell. A very handy mental map....
The funniest thing about the acquisition and announcement is that while the purchase is being couched in Big Data terms it is the weather insurance where the company makes its money. Ha!
Coming into the close the biotech giant and evil agribusiness overlord is trading down $1.27 at $103.78.
From Bloomberg:
Monsanto's Billion-Dollar Bet Brings Big Data to the Farm
The "purloined" explanation is from "WeatherBill: Is It the Riskiest Startup Ever?" (GOOG). It continues:As if we needed any more proof that the Big Data phenomenon is well and truly upon us, Monsanto (MON) has agreed to acquire the Climate Corp. for $930 million. The real stunner of a deal marks one of the largest buys of a new-era data analytics company.Climate Corp. was founded in 2006 under the name Weatherbill by a pair of Google (GOOG) engineers who wanted to capitalize on the world’s increasingly unpredictable climate. The new company offered insurance against weather-related incidents such as a rainout at the U.S. Open tennis tournament or a concert cancelation. As time went on, the company settled on a business model that revolved around providing a new type of insurance for farmers.
Historically, farmers have relied on federal crop insurance to protect them against the costs of their inputs—fertilizer, seed—during hard times. This setup, though, leaves farmers at a break-even point and does not address the profit they may have made from the crop. The Climate Corp. stepped in to offer insurance that would cover the profit, and it did so in a very innovative way. The startup turned the U.S. into a grid and used weather data to measure temperature and rainfall and other factors. If a farmer bought a policy that covered drought and his land didn’t receive the specified amount of rain covered by the policy, he was paid out automatically by Climate Corp. based on the measurements—no need to file a claim.
Last year I traveled to Indiana to meet some of the farmers using this type of insurance. It was early days for Climate Corp., to be sure, and farmers were just starting to wrap their heads around the company’s proposal. Louis Wischmeier, a grower with 5,300 acres of farmland near Columbus, Ind., had embraced the new insurance to cover so-called specialty crops, such as avocados and blueberries, that the government program won’t touch. “This gives us a huge chance to feel comfortable targeting high-profit, specialty crops,” he told me.
Monsanto played down the insurance business it’s buying by not even mentioning it until the sixth paragraph of a statement announcing the deal. Instead, it portrayed Climate Corp. as a Big Data agriculture whiz. “The Climate Corporation is focused on unlocking new value for the farm through data science,” said Hugh Grant, Monsanto’s chairman and chief executive officer. “Everyone benefits when farmers are able to produce more with fewer resources.” The statement goes on to celebrate the startup for building “the agriculture industry’s most advanced technology platform combining hyper-local weather monitoring, agronomic data modeling, and high-resolution weather simulations to deliver a complete suite of full-season monitoring, analytics and risk-management products.”....
...Insurance, of course, is a cash cow. The millions of acres controlled by large agribusiness firms mean that the market potential is huge. How many times have you collected on your homeowner's policy or auto policy? Warren Buffett made a substantial portion of his fortune through insurance. When I practiced law, I felt I could have done my job more efficiently if I owned a parrot that was trained to say, 'Coverage denied.'See also:
Traditional insurance, however, avoids assuming one type of risk like the plague: acts of God, otherwise known as earthquakes, lighting, tornadoes and bad weather. WeatherBill assumes some of these risks. The company also notes that 90 percent of crop losses around the world are caused by inclement weather. And the recent droughts in Ukraine and floods in Australia underscore that weather is getting wackier as the climate changes....MORE including some sharp comments.That last sentence is troubling because:
a) "Wackiness" is the exact opposite of what insurers look for, it reduces them to being just another punter on one side or the other of a bet.
b) Not even AGW-rabid climatologists are claiming that the weather in 2010 is the result of the 7/10 degree C rise in average world temperature over the last century. At most an actual scientist might pitch the line that "X" weather is "consistent with" some model or other.
c) In the case of the Russian/Ukraine heat wave of last summer NOAA a seriously AGW bunch said...
Google Ventures' next big bet: Weather insurance (GOOG)
Weather Investing (Hedging, Insuring)
"Geek Farmers Gamble on Global Warming" (GOOG)
Knowledge@Wharton: Weather Inc.
TechCrunch also took note of the acquisition, emphasizing "Big Data":
Monsanto Buys Weather Big Data Company Climate Corporation For Around $1.1B
Finally, insurance is all about asymmetric information. If the insurer knows the probabilities for losses and that the extent of losses will be less than their customer's estimations, the insurer can be very, very profitable.
