Specialty Weather Related Insurance

Weather related insurance, also known as weather insurance or weather derivative insurance, is a type of insurance that protects against financial losses caused by specific weather events. These events can include things like hurricanes, tornadoes, floods, and even extreme temperatures.

The purpose of weather related insurance is to provide financial protection to individuals and businesses in the event that they are affected by a weather event that causes damage or loss of income.

Weather related insurance can be broken down into two main categories: property insurance and business interruption insurance. Property insurance covers damage to physical property, such as homes or buildings, caused by a weather event. Business interruption insurance covers loss of income or profits as a result of a weather event. For example, if a business is forced to close due to a hurricane, they may be able to file a claim for loss of income.

One of the main benefits of weather related insurance is that it can provide peace of mind for individuals and businesses who may be at risk of financial loss due to a weather event. For example, a business owner in a hurricane-prone area may be able to sleep better at night knowing that they have insurance in place to protect them in the event of a storm.

Additionally, weather related insurance can also help businesses and individuals recover more quickly after a weather event by providing financial assistance for repairs or loss of income.

However, there are also some drawbacks to weather related insurance. One of the main drawbacks is that it can be expensive. The cost of weather related insurance can vary depending on the type of coverage, the location, and the likelihood of a weather event occurring. Additionally, some weather events may not be covered by insurance, such as acts of God or natural disasters.

Another drawback of weather related insurance is that it can be difficult to predict when a weather event will occur. For example, it may be difficult to predict when a hurricane will make landfall or how severe it will be. This can make it difficult for insurance companies to set rates and for individuals and businesses to decide when to purchase insurance.

In conclusion, weather related insurance is a type of insurance that protects against financial losses caused by specific weather events. It can provide peace of mind for individuals and businesses who may be at risk of financial loss due to a weather event.

However, it can be expensive and difficult to predict when a weather event will occur. It is important for individuals and businesses to carefully consider their needs and the potential risks before purchasing weather related insurance.

Resorts, hotels, motels, inns, and convention bureaus may purchase insurance to reimburse their guests if bad weather interferes with them enjoying their vacation. It may also be used as an inducement to attract more vacationers to a particular hotel or resort. These facilities may offer their guests cash, credit or refunds to be used for hotel or resort services.

Coverage applies to excessive rain or fog, lack of sunshine, or insufficient snow at ski resorts. This coverage can be added to travel agents' tour packages. The type of coverage provided and the rates that apply depend on historical data regarding the particular weather event being covered.

Coverage can be written for one day, a weekend, a week, or an entire season. Limits available vary per day for any number of locations the insured operates. The markets for this coverage are usually the same companies that write weather-related and other contingency risks.

Weather insurance is designed to protect the insured sponsor of an outside event or a manufacturer that designs a product (whose promotion depends on a weather-related risk).

This coverage is especially useful in three situations: (1) cancellation of events, such as outdoor concerts, civic and fraternal outdoor events, carnivals, lawn parties, outdoor weddings and receptions, parades, and sporting events; (2) as a marketing sales tool, such as an air conditioner manufacturer that offers incentives to customers in order to increase sales but then endures a cool summer, or a snow blower manufacturer that offers refunds if the winter's snow accumulation is substantially less than average; or (3) to stabilize cash flow, such as when too little snowfall reduces a ski equipment manufacturer's sales.

Insurers set objective and observable criteria that must be met in order for a payout to occur. An application that gives details of the event or promotion must be completed before coverage takes effect.

Commercial properties on beachfronts and low-lying areas in coastal areas are highly susceptible to damage from heavy winds and high tides. Many standard markets exclude wind coverage from the policies they issue in such areas. A variety of cooperative programs are available through the affected states but the dollar amount is limited.

Excess and surplus carriers can provide this needed coverage on either an excess or first dollar basis, subject to a deductible.

Following are some examples of Specialty Weather Related Insurance claims and the corresponding insurance coverages that can help pay for them:

1. Hail Damage to Farm Crops: Specialty Weather Related Insurance can provide cover for a farmer whose crops have been extensively damaged by a hail storm. Without insurance, this farmer would be forced to absorb the costs of the loss, potentially jeopardizing the business. However, with specialty insurance, they can file a claim for the estimated value of the crops lost, effectively transferring the risk to the insurance company. The insurance payout can help replace the lost income, allowing the farmer to recover more quickly and continue operations.

2. Event Cancellation Due to Severe Weather: An event planner hosting a large outdoor festival may have to cancel the event due to severe weather conditions like a hurricane or heavy rainfall. Specialty Weather Related Insurance can cover the costs associated with cancellation or rescheduling, including lost ticket sales, vendor fees, and other expenses. The insurance coverage can help mitigate the financial losses and potential lawsuits from vendors or attendees.

3. Flood Damage to Property: A homeowner in a flood-prone area might suffer extensive damage to their property due to a sudden flood. Standard home insurance policies often don't cover flood damage, but a Specialty Weather Related Insurance could. This policy would enable the homeowner to file a claim to cover the costs of repairing or rebuilding the damaged property, reducing the financial burden of recovery.

4. Ski Resort Snowfall Shortage: A ski resort relies heavily on regular snowfall. In case of unusually warm weather leading to insufficient snow, the business could suffer significant losses. Specialty Weather Related Insurance, specifically designed for such scenarios, can provide compensation based on predefined conditions such as a certain minimum amount of snowfall. This can help the resort cover its losses or even fund artificial snow production if needed.

5. Wind Damage to Commercial Properties: A business with commercial properties may face extensive damages caused by high winds from storms or tornadoes. The specialty insurance can cover the cost of repairs or rebuilding, and business interruption insurance (if part of the policy) could cover loss of income during the restoration period. This can protect the business from significant financial loss and potential lawsuits from tenants or customers due to the interruption of services.