Enterprise Wide DR (16)
In a world that insures itself relentlessly against any unpleasantness, weather insurance has been a bit slow to catch on. Until recently, because of the unpredictability of weather patterns, it has been a widely held notion on the part of brokers that weather is unreliable, and hence uninsurable. But isn’t the weather’s very unreliability a better reason why one should insure against it, than why one should not?
The weather underwriting industry is one which is dedicated to insuring all other industries against nature’s little (and big) surprises. Weather insurers, for example, use a computerized database with weather statistics dating back over 40 years for over 30,000 weather stations across the globe, to assess probability of excess or insufficiency of precipitation, temperature, wind, snow and other loss-causing weather phenomena. With that type of information available, it is an easy task for the broker to obtain a quote readily over the phone. Indeed, there are many options for a broker to choose from.
The uses of weather insurance are varied, including film production, agriculture, marketing promotions, and concerts or sporting events. In the case of event-type insurance policies, for example, four basic coverages against excess rainfall exist. Their headings reflect the accuracy with which precipitation can be predicted not to occur: cumulative rainfall, which predicts the number of hours in a row to be without rain; non-consecutive dry hours, which computes the chances that a certain number of hours within the specified period will be dry (for example, four out of six dry hours); and extended period quoting, which allows the weather underwriter to compute the chance that a certain number of days within the specified period will be dry. Wind, maximum or minimum temperature, and snow coverage are also available-even in Alaska.
“There was an instance when our client was shooting a commercial for the post office in Skwentna, Alaska,” recalls Robert Mitchell, a broker for the Los Angeles firm of Truman Van Dyke. “We had a policy underwritten for adverse weather conditions, in this case, lack of snow. It warmed up and there wasn’t any.” Fortunately, because the client was wise enough to take out a policy against unseasonably warm temperatures, he did not lose any money.
The range and breadth of weather insurance coverage extends from an outdoor concert in New York City, to a farmer’s peach crop in South Carolina. Many land-owners who work their land for a living, in South Carolina and other rural areas, have come to realize that drought, crop-burn, flooding or frost will eventually find the way to their land. For those farmers, named-peril insurance has become a “farm-saver” in a natural disaster. The quotation for the premium is offered after the weather underwriter obtains vital information such as commencement and expiration dates, total dollar exposure, and the particular peril the farmer faces. Then, once the premium is received, the policy is issued.
Not only can weather insurance benefit the agricultural industry, but it can also be used to spur sales. Since we market everything in this nation from presidential candidates to fluorescent tennis balls, should weather insurance remains silently on the sidelines as a marketing tool? Weather insurance can be easily worked into any marketing scheme for just about every product or service offered on the face of the earth. After all, what is there that isn’t affected by the weather? The marketing potential is limited only by the imagination. In one promotion for a jewelry store, customers who made purchases in the first few weeks of December anticipated a full refund if it snowed on Christmas Eve. Sales for this retailer went through the roof. Other refund or partial rebate promotions have been used for items as varied as snowblowers and air conditioners, on the premise that customers will be more likely to buy weather sensitive equipment if they know that they will either have a use for it or receive a refund if they do not.
Yet another type of weather insurance is business interruption coverage. For example, when a hurricane hits an offshore oil terminal, and high winds and seas force a shutdown, the business interruption coverage will indemnify against loss of income or cost that would result from the inability to move the product. This type of coverage is also extremely valuable to utilities who are stuck with heating oil or gas reserves due to a mild winter, or customers of these utilities who incur extra bills due to a bitterly cold one. The weather insurance industry will cover both types of crises.
The premiums for weather insurance, as has previously been noted, are based on the history of weather patterns from over 30,000 weather stations. For an event, to calculate that premium, all that the weather underwriter needs from the broker is the date(s) and hours of requested coverage, and the location of the event. For example, if the broker wants to insure a concert in Dallas that will occur between the hours of six and nine p.m. on July 4th, the weather underwriter will input that information into the computer’s underwriting program for cumulative rainfall. The computer will then search its database for the eve of July 4th (plus several days before and after) in the past 40 years and find out how many times, and how much, it rained between the hours of six and nine p.m. It then computes the chances, based on the weather history at that location, for a certain amount of rain to fall again at the specified time, and gives the underwriter a percentage to work with. The weather underwriter and the broker then use this percentage to arrive at an agreeable premium.
It is even possible to do what is known as a “comparison” program for some remote locations on an international basis. At the present time, there is not as extensive a database for many smaller cities around the world as there is for the United States. However, if a broker in Cannes, France, for example, requested a quote for the famous annual film festival, the database is able to pick up certain key factors or weather elements from the pertinent locations, and geographic information. A correlation is then run to find the location in the hourly database for which there is voluminous data that best matches the weather of the area in question.
At this point, it would be helpful to know the cost and commission structure which would be pertinent to brokers interested in weather policies. Obviously premium rates are contingent on location, type of risk and period of exposure. Now for instance, a one-day concert may require between three and 12 percent as premium. Marketing promotions and business interruption policies which fall under longer term coverage would cost between one and five percent. Because coverage plans are so flexible (even permitting a small amount of precipitation well after a concert has begun), an equitable arrangement can almost always be worked out that will benefit the underwriter, the broker and his client.
Of course when considering weather insurance, brokers instinctively draw on parallel experiences. The weather underwriting industry issues a valued-at policy which would insure the customer for the entire sum (full-value) if a threshold of for example, rainfall, is passed. Alternatively, a non-valued policy is also issued, in which the customer must prove the loss up to a certain limit, or a limit for the insurance company to pay.
It should be pointed out that the wrestler underwriting industry offers the unique advantage of representing companies that are admitted and non-admitted in all the states, and even other companies on a worldwide basis. Basically, a company has to go through certain requirements with the state insurance departments to write on an admitted basis. Rates and rules that are part of the policy must be filed with the state. While in the U.K., the status is more of a laissez-faire, non-admitted market. Under non-admitted status, these rules do not apply.
Realistically, any weather insurance policy, that indemnifies a client against weather-related loss can be the bridge that will assuage a client’s anxieties, earn a commission for the broker, and expand the growth of the weather insurance industry. Consider for example, that a postponement of a single day’s feature film shooting can cost upwards of $500,000.... Now while Ken Licata, president of Licata International Productions, a New York TV commercial company, did not have as large a price tag, he did find weather insurance beneficial. “When our company was shooting in Tucson, Arizona, we were insured for 10 hours of sun in a 12 hour period,” Mr. Licata remarked. “There were periods of clouds that exceeded the insurance requirements in the two separate $25,000 policies, and the claim was paid for additional work required,” he said. All in all, with the superior computer firepower that the weather insurance industry has at its disposal, it makes more sense to take out a policy for those weather-sensitive events, products, or crops, than it does to let Mother Nature do what she will.
Harold Mollin is President of Customized Worldwide Weather Insurance Agency, Inc., based in Great Neck, New York, and specializing in weather insurance.
This article adapted from Vol. 6 #2.
There is a misconception of expert systems within the contingency planning industry. The term “Expert System” is often misused by marketers in this industry.
For instance, many software systems designed for contingency plan development are based on a word processor and/or some sort of database, either relational or flat file.
While these systems were developed by contingency planning experts, most of the systems themselves are not expert systems.
An expert system is one that has been developed by both contingency planning experts and knowledge engineers (usually a specialized programmer).
The planning expert works closely with the knowledge engineer to develop a system that closely reproduces the expert’s planning methodology.
The expert’s specialized knowledge is captured by the knowledge engineer and converted into an extensive set of rules.