With every new problem in the world that emerges, there seems to be some enterprising insurers that follow--willing to put up capital and write policies to take on that developing risk. One could surely assume that the unpredictability caused by climate change would be no different.

What might be surprising is that insurance for weather events is nothing new, and insurers have been providing policies for years.

The most familiar form is event coverage, providing that if the weather does not cooperate--for instance the temperature is too high for snow to form for an Olympics downhill ski run--an insurance program can cover the losses.

But what about Main Street businesses that could be affected by the weather?

For them, there is weather income stabilization insurance, which existed long before "climate change" became the operative phrase to describe concerns about weather fouling up plans and businesses, according to two specialty brokers and agents that place the coverage.

One is Global Weather Insurance (www.globalweatherinsurance.com), a wholesale brokerage that has been around for 35 years, eight of which dedicated to weather insurance, according to Patricia Sleicher, president of the Great Neck, N.Y.-based firm.

The other is WKF&C Insurance Agency (www.wkfc.com) of Melville, N.Y., a managing general agency headed by Tom Wilson, president and chief operating officer, and Michael Sillat, chief operating officer.

The three explained that unlike weather event coverage, which only covers a single event for loss due to the weather, weather stabilization coverage is a much broader coverage. For example:

o A blizzard could hit during the Valentine's Day period, affecting both restaurant owners and florists with customers not coming out or deliveries not made.

o A swimsuit manufacturer suffers through a cool summer and the items sit on the racks.

o Or a municipality has a limited budget for snow removal for the season of up to 65 inches--over that would spell budgetary woes.

Weather income stabilization, they say, can cover those potential revenue gaps when there is a measurable weather event that occurs during a given period of time.

The insured, however, does not have to suffer a loss of income in order to collect on the policy, Ms. Sleicher explained.

Instead, indemnification is based on the measured weather event usually at the closest weather station or meteorological site. "Settlements come quickly because either the event happened or it did not," she said.

Premiums, she continued, are usually established based on the historical weather data at the location, the dates and season of the coverage, and can even come down to specific hours if that is a part of the policyholder's concerns.

Weather insurance had its genesis about 30 years ago when cable companies were worried about covering losses from pay-per-view heavyweight fights, explained Mr. Wilson. They were concerned weather could interrupt transmission of the event, which would mean reimbursement to the viewers.

It was Lloyd's of London that stepped in and offered the product, and weather event coverage was born, he said.

The product evolved further when small church groups that planned one-day festivals to raise money--often their primary fund-raising events of the year--began buying weather event coverage, Mr. Wilson said.

Many of these outdoor festivals can make or break a church's financing for the year, he said, and inclement weather could ruin all the good intentions of that one day. The income stabilization element of weather insurance programs was born to cover the proceeds of such events, and expanded from there, he said.

In the early days, he said, one or two carriers wrote such coverage. Today, that number has grown to somewhere between 10 and 20 carriers.

As for capacity, said Ms. Sleicher, there is no issue. Writing all depends upon the risk and the willingness of the insurer to accept the exposure.

Interest in the product continues to grow, all three executives said, and not necessarily because of growing concerns with global warming, noted Mr. Sillat, but because of education about both the whims of the weather and the availability of the product.

"Everyone is pretty conscious of it," said Ms. Sleicher. "If they purchase it, that's another question."

Mr. Sillat credits growing awareness to the Weather Channel and other media that has increased knowledge of weather and its measurability. He said that has probably had more impact in the interest in weather insurance products than global warming itself.

People better understand weather as a risk, as well as their inability to control that risk, he said.

"Until we can control the weather and its impact, there will be a need to cover these risks," he said.

He estimated that the current market for weather insurance--not including weather derivatives, just the pure weather insurance market--stands somewhere between $30- and $50 million.

There is belief that it has the potential to rise into the billions, he said.

"This is a very, very young product compared to the totality of property insurance," said Mr. Sillat. It will be the education of producers and increasing the pool of insurers willing to underwrite this product that will lead to market expansion.

"This product is so diverse that the applicability in today's society is limitless," observed Mr. Sillat. "I could come up with hundreds of businesses that insufficiently know about the product and could take advantage of it."

"It can range from an airline that wants to indemnify a certain route at certain times of the year when their passengers get disgruntled because they have to cancel flights because of weather, to the average Joe who has a schedule for pouring cement and can't if it rains."

"Or a major Fortune 500 company that wants to do a $10 million promotion of ice carvings for a product they sell. If it's too warm, the whole event could be a wipeout," he said.

"Any business that is affected by outdoor weather is a potential client," he continued. "We tell agents, 'Try to imagine what your insured is doing during the year with their business and how the weather could affect it.' That is the way to potentially market this product and generate interest," he said.

Special Reports /

Insurers Answer Weather's Unique Whims With Income Stabilization Cover

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