Traditional insurance offers protection against events such as floods and storms, but in the UK and in Europe there is not yet a wide use of protection against the effects of seasonal weather patterns such as temperature, rainfall or sunshine. However, these factors can have a major influence on corporate results and many firms publicly acknowledge this. As weather hedging becomes more commonplace, blaming the weather for poor results will become less acceptable.
Weather derivatives or insurance generally provide volumetric hedge protection against a reduction in sales volumes, rather than profit. Companies interested in such protection therefore generally have a good correlation between their volumes and a weather index. The index used is most commonly temperature, but rainfall, sunshine, wind speed, or other measure may also be used.
Willis is one of the pioneers of weather risk hedging. In the US, we have led the development of the business, with clients including industrial companies, utilities, insurers and energy traders.
We can advise organisations on all aspects of managing their weather risk, from determining and evaluating exposure, up to and including advice on trading in the market. We can model and price derivatives and insurance programmes and have access to extensive weather data and climatic research. The Willis team has already transacted over 50 major weather deals worldwide Our particular strength is in whole-season or multi-year deals.