New risk assessment products for dealing with financial exposure to weather hazards

A market place designed to provide a variety of weather-sensitive institutions with products for dealing with their risks from weather-climate hazards has been developing in recent years. Shifts in demographics, growing population, and greater wealth across the U.S., coupled with de-regulation of utilities and expansion of global economics, have increased corporate vulnerability to weather/climate extremes. Availability of long-term quality climate data and new technologies have allowed development of weather-risk products. One widely used by electric-gas utilities is weather derivatives. These allow a utility to select a financially critical seasonal weather threshold and for a price paid to a provider, to get financial payments if this threshold is exceeded. Another new product primarily used by the insurance industry is weather risk models. These define the potential risks of severe weather losses across a region where little historical insured loss data exists. Firms develop weather-risk models based on historical storm information combined with a target region’s societal, economic, and physical conditions. Examples of the derivatives and weather-risk models and their uses are presented. These various endeavors of the new weather market exhibit the potential for dealing with shifts in weather risks due to a change in climate. Copyright Springer Science+Business Media, Inc. 2007