Until this year, insurance coverage for farmers, protecting their crops from natural disasters, has been in the too hard basket in Australia.

It's frustrated one company that has developed quite a different insurance package, called parametric insurance.

In a year of dashed hopes for eastern grain growers, all insurance ideas may now be back on the table.

Farming is a gamble, so is the share market. You can hedge bets on the share market, so why can't you in farming?

The parametric insurance product is like hedging your bets on the weather.

Jonathon Barratt, of global insurance company CelsiusPro (formerly WeatherPro), says a farmer can act quickly before a natural disaster strikes the crop.

"Within 15 days - so when a farmer looks at it, they can see when an event is going to happen or get an idea from the forecast that it's going to be a dry period or a wet harvest, or potential for a frost, and then they can come quite easily and take up the position and if it does happen acutely then they can get paid."

That's quite different to covering yourself against all natural disasters, with multi-peril crop insurance, which has been offered for the first time this year, by Latevo International.

Mr Barratt says Celsius Pro's product is modelled on the parametric insurance that is already used by global underwriters, as a swift hedge against a natural disaster, including cyclones.

The cost of the short-term coverage depends on how likely and how damaging the risk will be.

"That cost may be as low as 3 per cent, or as high as 12 per cent of the cost of production.

"If the risk is more acute, the farmer is more likely to take it up.

"If he's sitting out there with a lot of profit and the market's good, the wheat's good, the crop's good, there's a chance of a wet harvest, then he'll look to cover it quite quickly, and that to me is one of the keys.

"When you're looking at a $60 a tonne downgrade in your wheat production, when you can cover something 15 days out from harvest you tend to weigh into that.

It's more of a hedge on the weather so it's an amount that you actually pick.

"You might say the downgrade might be a particular amount, therefore I'll cover that amount, it might not be the overall percentage of your inputs."

Mr Barratt says he's been very frustrated that Australian Governments, insurers and banks haven't adopted it, so his company Celsius Pro has more work overseas in the USA and African countries like Ethiopia.

"This is one of the programs which people love to hear about because the government could see the risk. The drought was prominent, which we all know.

"We worked with the government to cover the farmers. We worked in 15 regions of Ethiopia and covered 6,500 farmers, so that in the event that there is a drought, then the farmers get paid by the government."

The National Rural Advisory Council NRAC reviewed parametric insurance, in 2012, along with other multi-peril crop insurance, and found insurance needs substantial government support to be viable for farmers.

But in the face now of another expensive drought bailout, insurance is getting a second look.

A group of Grain Producers is reviewing all the packages and Mick Keogh of the Australian Farm Institute is working with them.

On parametric insurance, farmers would need confirmation that a severe weather event could trigger their insurance payout and weather stations have until now been too far apart.

"Yes that's correct, in situations where there is 200km between met. stations, you could have enormous variations with the climatic conditions that you experience on an individual property in that area," says Mick Keogh.

"That was the case in Western Australia, but the State Government has implemented an additional 140 weather stations in the grain zone to fix that."

Are we going to see a shift now to insurance?

"I think so. There's no doubt the high volatility caused by climate risk means farmers lock up a lot more capital, to be self insured.

"But that means farmers aren't investing in capital improvements to increase their productivity like new machinery, changing fences."

Jonathon Barratt of Celsius Pro's blames laziness by Banks, insurance companies and Governments in not embracing parametric insurance.

"In Ethiopia we took six months to put a program in, but in Australia we've been talking to people since 2011, about putting in a measure that could save a lot of concern on the land, a lot of stress, by simply implementing projects.

"So we can solve a lot of these issues, depends on how willing people are to take up the gauntlet."

Source - http://www.abc.net.au/