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Articles tagged 'weatherbill'

Weather forecasting.

I’ve been avoiding putting together a list of predictions for 2010 (more on that later) but just couldn’t resist suggesting that 2010 could well be a breakout year for weather risk management. All of the conditions necessary have finally started to come together and with the worst of the 2008/2009 hysteria behind us (without passing judgement on the future direction of markets), companies (and hopefully individuals) will start to wake up and respond to the risks and opportunities inherent in weather variability. I wouldn’t be surprised if weather risk was one of the top three risks faced by the vast majority of (non-financial) corporations, perhaps even the most important risk in some cases, and of the same order of magnitude as liquidity, foreign exchange, commodity and interest rate risk – all risk categories for which massive global markets in risk pricing and transfer exist. Weather in this regard remains significantly underdeveloped:

(via Ben Smith, First Enercast Financial) For example the Department of Commerce estimates that more than $1 trillion of U.S. economic activity is exposed to weather. Even if a small fraction of new risk is hedged through derivative contracts, 2010 will be a very good year for these markets.

The massive costs incurred in much of the northern hemisphere over the last few weeks due to heavy snowfalls and cold temperatures are just one more example of how important a factor in economic outcomes weather risk can be. For example, just take the exceptional – and uninsured – costs incurred by local authorities and airport operators across the UK for snow removal, sanding, salting, loss of revenues, etc. Previously, a manager of a company (or government entity) who suffered an exceptional weather-related loss could shrug their shoulders and plausibly say “it was out of my hands.” In a way that would be impossible if for example their organization suffered a massive loss because their buildings or equipment perished in a fire and they were not insured. In that scenario, shareholders or taxpayers would be incandescent with rage at the incompetent risk management of the managers. Not managing weather risks is no different in substance (now that appropriate weather insurance and derivatives are increasingly widely available), only remaining so in perception as awareness lags.

Of course I am biased, having invested in Weatherbill, which is at the vanguard of transforming weather risk markets:

(via J. Scott Mathews, WeatherEX LLC) The weather market was built upside down, which is quite a feat, even for financial engineers. What we mean is that it started on the wholesale level without any retail underpinnings. It started out like a castle in the air…The changes coming in 2010 for the weather derivative market will be keyed “from the bottom up.” Solutions companies such as Guaranteed Weather and Weatherbill who bring management choices to “ground level” risk holders are helping to complete a strong base to keep that castle from crashing on us.


The difference between weather derivatives (Weatherbill.com) (or any other new risk management tool) and say books (Amazon.com) is that risk management tools need to be ‘sold’ – there is a learning curve, however shallow; and while most people instinctively understand and can conceptualize their weather risks, their survival instincts – honed by decades of doing business with rapacious financial services firms – and fear of ‘getting their eyes ripped out’ means that they are understandably cautious when considering using weather risk management instruments for the first time.

This is where Weatherbill’s business model I think is particularly well adapted to the opportunity: on the one hand, they have a very modern (open) approach to pricing: anyone can go to their website and play around in their pricing ‘sandbox’. Try doing that ten years ago when you wanted to price up a complex FX or interest rate option. Basically it was build your own model or keep sending pricing request to your favorite sales person (who would then have to go beg the trader for a price, and in addition to the regular parameters, the client’s identity, the salesperson and the trader’s mood would also be imputed into the price. That is of course if he felt like making one.) On the other hand, (and this is something that has evolved over the past couple years) Weatherbill has aggressively sought out distribution partners – insurance brokers, industry platforms (eg travel sites), etc. – as trusted providers to their respective customer bases, they are ideally positioned to help their customers manage their weather risks by leveraging Weatherbill’s platform. I first wrote about this a few months ago, and since then they have signed up a number of new and significant partners.


I love skiing and my family take a season pass at Les Trois Vallees. Obviously weather risk is central to running or enjoying a ski resort. While there are many different types of risk you could look at in the context of a ski resort, in the interests of simplicity (ease of understanding/customer acceptance) and maximum pain relief, there are two risks that I would have loved to have had an embedded hedge for in our season ticket (and I suspect the same would go for someone buying a week-long pass for their holiday, in fact they would probably be even more sensitive/appreciative.)

  1. Not enough snow to ski risk: ie not that the snow is great or this or that…the basic risk that the pistes are closed. For most modern ski resorts this is actually a function of temperature and not precipitation, as they use snow-making machine to lay down a base. Temperature risk is much easier to measure and price (than snowfall) and has much lower geographic variability ie you don’t need a weather station on every piste on the mountain.
  2. Rain risk: ie the only time it is absolutely unpleasant to ski is when it is raining. Also, rain typically doesn’t help the existing snowpack, making skiing after rain often unpleasant as well.

Using Weatherbill to hedge their risk, Les Trois Vallees could offer a ski-pass that reimbursed me for every rainy day and for every day say less than 80% of their runs were open due to lack of snow. In an age of increasing climate uncertainty (or perception thereof) I am 100% certain this would help them market (and sell more) season tickets. And for week-long tickets, it would be a great marketing tool for advance sales (with significantly positive cashflow benefits), and great for improving the user experience. Imagine a vacationer whose week in the Alps is ruined by 5 days of torrential rain…getting their money back on the lift tickets (irrespective of whether or not they braved the elements) would go a very long way to having them consider giving it another try next year.

Of course this is but one example, I’m sure all of you can think of hundreds more. In fact it might be harder to think of services or businesses that are completely immune to the weather. So really, what are you waiting for? Start hedging!

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Weatherbill Now 50% Easier To Use!

Image representing WeatherBill as depicted in ...
Image via CrunchBase

Ok full disclosure:  I just totally made up the silly marketing claim in the headline…but the good folks at Weatherbill have just launched a new, sexier, easier to navigate website. Check it out and please send them feedback – the good, but especially the bad and ugly – either in the comments here or on their blog.

I’m going to miss the farmer though…we hardly knew him at all.

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Markets in everything, part 648.

British Aerospace 146
Image via Wikipedia

Was cleaning up my inbox earlier today and this interesting promotional offer caught my eye:

flybe 'Book with confidence' promotion

Flybe’s website goes on:

This year we wanted to go one step further to give you extra peace of mind. We will give passengers who book flights, car hire and hotels direct* with Flybe in January 2009 free of charge travel cancellation cover in the event of redundancy prior to travel. Offer excludes the self employed and those who have had less than 2 years continuous employment and who do not qualify for statutory redundancy pay as per Statutory Redundancy legislation.

It seemed potentially interesting as yet another example of risk management tools being given to consumers. So I thought it would be interesting to look at the fine print

Ignoring the irony that the policy backing up this offer is underwritten by AIG UK Limited…I was pretty disappointed (but not surprised) by what I found. Firstly, you are only paid if you cancel your trip. This is totally lame. If you lose your job, you’ll likely be more inclined to take the holiday/family visit/etc. you have booked. Further I’m not sure everyone will realize they only get reimbursed if they cancel, (even though to be fair to flybe they make it clear that it is cancellation coverage…)

On the other hand, I guess if it were true redundancy insurance, you might have a serious adverse selection problem (and AIG would charge more?) even though the terms state that “at the time of booking your trip, you had no reason to believe that you would be made redundant” (does that exclude then everyone who works for a bank? or for AIG UK?)

Anyhow while this particular offer is more gimmick than substance (as opposed to the iTravel Let it Snow promotion underwritten by Weatherbill for example), I think it is indicative of a growing trend to providing consumers with granular risk management tools.

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More (weather) derivative goodness.

As you may recall, a couple months ago Weatherbill announced a partnership with Priceline, underwriting a promotion they ran that would reimburse the cost of your holiday package if it rained more than half the days during your stay.

It’s always important to put theory to the test and so I was happy to see that the promotion seems to be a success:

In June, 12% of Priceline’s site traffic clicked on a promotion. While the Sunshine Guarantee promotion may attract only a niche audience (0.2% of Priceline shoppers), those who do click on this promotion are highly likely to convert – an impressive 24% of Sunshine clickers will complete a booking. Despite attracting relatively few clickers, it resonated with its audience and led to strong conversion rates, showing just how effective a smaller, targeted promotion can be.

I’m sure we’ll see more and more of these sorts of embedded derivatives in weather-sensitive consumer products. While you may go to the time and effort of directly hedging your wedding, the average person – even if they were aware of an easy-to-use product like Weatherbill – probably will be too busy/apathetic/forgetful to hedge something smaller – like a day out golfing. But embed the coverage into the product (or at least make it as easy as ticking a box) and I think demand will be very high. The days of “NO RAIN CHECKS” are surely soon behind us…

Sunshine Guaranteed.

Image representing WeatherBill as depicted in ...
Image via CrunchBase

Great to see David and his team at Weatherbill line up another great deal – this time with Priceline, bringing the benefits of (weather) derivatives to Main Street:

Under the limited-time Sunshine Guaranteed promotion launched today, customers who book a qualifying Priceline vacation package between June 2 and July 17, 2008 and travel between July 1 and September 7, 2008 will be eligible for a refund if their vacation is rained out. For full details on Priceline’s Sunshine Guaranteed promotion, visit: http://www.priceline.com/promo/sunshine_guarantee.asp

Brett Keller, priceline.com’s Chief Marketing Officer commented, “Ten years ago with our Name Your Own Price® launch, and more recently with our elimination of booking fees on published-price domestic and international airfares, priceline.com has demonstrated a commitment to continually innovate in order to get great deals for our customers. Now we’re also offering them great weather. Best of all, these Sunshine Guaranteed vacations are available at the same great prices we offer for all of our packages. Our customers can book their Sunshine Guaranteed trips and rest assured that there’s a silver lining waiting if Mother Nature doesn’t cooperate.”

There is no additional charge to book a Sunshine Guaranteed vacation package. Qualifying vacation packages must be 3-8 days in length. Travel must commence at least 12 days after a package is purchased. If it rains more than 0.50 inches per day on half or more of the days of a Sunshine Guaranteed vacation (including travel days), priceline.com will provide a refund for 100% of the cost of airfare, hotel, rental car and attractions and services components of the Sunshine Guaranteed vacation package.

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