Tuesday, March 1, 2011

WeatherBill: Is it the Riskiest Startup Ever?

http://feedproxy.google.com/~r/greentechmedia-all-content/~3/XuwQYxpDLoc/

WeatherBill says it will use probability to ensure farmers against the unexpected.

The question now is which side--certainty or chaos--will win.

The company, which received a $42 million injection from Google Ventures, Khosla Ventures, NEA and others today, has produced a product called Total Weather Insurance. In a nutshell, it exploits the magic of probabalistic computing, the underlying technology of Google and other search engines, to predict weather patterns and help farmers plan accordingly.

The company's algorithms continually examine streams of incoming weather data, past history, local conditions and other factors to devise a personalized insurance policy for a farmer. Then if the farmer experiences unusual amounts of rain or snow, or a lengthy drought, WeatherBill pays the claim automatically. (Last year we predicted Google would shift its green investments toward technologies that took advantage of its expertise in probability.). Founders David Friedberg and Siraj Khaliq came from Google.

The company charges $15 to $75 per acre per policy. Here's an example of how it might work. Let's say a farmer buys drought coverage for $10 an acre for the month of July. The farmer under this policy mighht get $100 per acre if rainfall is 2.31 inches less than normal, and $50 an acre if it is 1.15 inches less than normal. Premiums are calculated on the likelihood of loss.
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Farmers might be able to hedge their losses against the weather, but it could become difficult for WeatherBill in some situations to properly value risks or even pay off claims. Expectations, exclusions, exceptions--an entire cultural dynamic for this type of service to be developed for it to succeed as well. Does this have to be regulated, state-by-state, by the Department of Insurance, or can it be classified as a different type of transaction?

It's a great idea, but Mother Nature sometimes plays with a stacked deck.

by Michael Kanellos
www.GreenTechMedia.com
February 28, 2011

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