If you’re looking for disruptive agtech, this could be it and it’s not what you think.
Crop Pro Insurance has raised an $8 million Series A round led by ag-focused venture firms Finistere Ventures and S2G Ventures. Crop Pro Insurance, which is based in Des Moine, Iowa, received approval from the USDA to sell crop insurance on June 30, making it the newest player in a very small club of only 16 approved providers.
Established insurance provider GuideOne Insurance also joined the round.
As well as offering typical crop insurance coverage for weather, pests, flooding, and price fluctuations, Cro Pro, which claims to be the first VC-backed insurer to be approved to offer federally-backed policies, aims to promote agtech adoption through unique private, agtech insurance products. So, if a farmer decides to try a new biological yield enhancement product, for example, and purchases a policy on it from Crop Pro, the farmer can make a claim and recoup some of the investment if the product doesn’t work as the manufacturer forecasts.
This insurance product is not covered by the governmental subsidy on general crop insurance, which covers up to 60% of a farmer’s insurance premium, and 12 cents on the dollar of a premium goes toward insurance providers’ costs.
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“The federal program doesn’t cover everything and historically our niche is to build products that cover areas that the federal program doesn’t cover,” said Crop Pro CEO Billy Rose, who has spent 20 years in the crop insurance industry including several years with Crop Pro in its previous iterations within the crop insurance industry. He continued, “We’re going to de-risk the farmers’ ability to try some of these technologies.” Crop Pro’s products which will not only cover technology upgrades but also conversion to premium products like non-GMO corn or designer seeds, could be covered as well with potential for the insurance policies to be co-marketed with new technology.
“The market is demanding these types of products that fill these gaps.” continued Crop Pro president Joe Young.
Agtech adoption potential
Lead investors Finistere and S2G are bullish on Crop Pro’s potential to disinter-mediate the adoption of agtech across the country, although the true impact of the program to jumpstart agtech adoption will depend on which technologies the policy will cover and how they will decide.
When a technology underperforms, the insurer will determine the insurance claim based on forecasts from the agtech companies, university data if available and, if enough data exists, third-party actuarial assessments.
In this way, and should the product spread in the way that all involved would hope, Crop Pro could become an important arbiter of agtech success.
For S2G and Finistere, there is also a clear opportunity to tap into Crop Pro’s data to glean insights about their portfolio companies, and any new investment they might make in farm tech. Crop Pro’s proprietary algorithm, which will evolve as it underwrites more products, will create a valuable barometer for a successful agtech product. Plus Crop Pro will have a valuable window into what works and what doesn’t.
Sanjeev Krishnan of S2G said he expects to establish a “nonpartisan process” where the information would need to be carefully wielded. “The integrity of Crop Pro will be number one,” he continued. “We’ll create firewalls to make sure that is appropriately managed. I don’t want it to be just in our bailiwick. We want the friction between the innovators and deployment to be low.”
That being said, Rose said that the company would be leaning on S2G and Finistere to help with technology review as they build the algorithm that will evaluate new technologies and products in the future.
After solidifying a customer base, Krishnan said that the ability to underwrite risk using data science could open the door to more innovative financial products, like technology loans, for example.
“If you have the ability to help farmers underwrite risk, can you also finance them with a cheaper cost of capital then they’re getting today? It could unlock a lot of friction points,” he said.
Along with a data-enabled risk assessment methodology for its technology policies, Crop Pro is working on compatibility with all of the major automated acreage counting systems in order to have the most tech-enabled process on the public crop insurance side as well.
It has been a hot year for venture capital investment in insurance startups. So far this year, startups have almost raised last year’s total of $830 million with $740 million invested in the sector. It may seem like a mismatch since the major players in insurance are ancient and entrenched. But choosing to acquire innovation, rather than try to grow it from within, should be a familiar story to the agriculture industry.
Insurers are constantly looking to diversify their risk by covering things that are not subject to any of the same forces — think cars and corn, laptops and life insurance. S2G’s Krishnan said that acquisition is indeed the likely exit for Crop Pro Insurance.
Also participating in this Series A round is GuideOne Insurance, an Iowa-based, niche insurer offering church, education, nonprofit, and senior living coverage.
For the 2018 growing season, Crop Insurance Pro will be available through agents in the 13 midwestern states where the insurance of broad acre crops totals about $6 billion in premiums.
The deadline for farmers to purchase crop insurance for the spring season is March 15, so we’re likely to know soon just how much appetite is out there for data-enabled, agtech crop insurance.
Though farmers are not required to purchase crop insurance, 85% of broad-acre crop acres and 73% of specialty crop-acres are covered, according to the USDA’s Risk Management Service (RMA). The process to get approved as a crop insurance provider is arduous and long, which is why only 16 providers (including Crop Pro) are approved by the USDA for the 2018 growing season nationwide.