As millions of Americans cope with thick coats of ice, piles of snow and bitter cold, some of them are feeling secure under a blanket — a blanket of insurance, that is.

Across the country, storm-ravaged small businesses, large organizations and municipalities are plowing ahead with plans to file claims under their weather insurance policies. This type of insurance covers policyholders — ranging from farmers to concert promoters — if bad weather of any type strikes, such as a snowstorm or thunderstorm.

Lori Shaw, a weather insurance expert at Aon, a Chicago-based risk management firm, says: “Look at the City of Atlanta. It has a snow removal budget of $10 million; they’ve already run through $9 million. That’s a classic weather-insurance situation.”

At Global Weather Insurance Agency Inc., a municipality can buy a policy to ensure that overtime and equipment expenses associated with removing large amounts of snow won’t force a city or county to borrow or raise taxes to cover costs.

Insurance against bad weather usually is sold to organizations, not individuals. For instance, Global Weather Insurance Agency has issued weather policies to production companies behind such movies as “Basic Instinct” and “The Perfect Storm.”

“It’s mostly companies who buy it,” says Patricia Sleicher, president of Global Weather Insurance Agency, based in East Setauket, N.Y. “They really have the most to lose. Take a movie production site, or a special event like an outdoor concert, a county fair or a rodeo. If bad weather hits, the companies that run these events and have no insurance stand to lose a lot of money.”

Among the performers whose concerts have been insured by Sleicher’s company are the Rolling Stones, Michael Jackson, Garth Brooks and the Beach Boys.

“We basically insure the weather — any event that has a weather exposure risk,” Sleicher says. “The rates for weather insurance really depend on the crisis and the weather situation. We see rate demands for anywhere between 1 percent and 10 percent of the total policy.”

In other words, anyone wanting to cover $1 million in potential losses would pay up to $100,000 for a weather policy from Global Weather Insurance Agency.

How weather insurance works

The goal behind weather insurance is straightforward – to protect against financial losses triggered by severe weather.

“Weather insurance can reduce the need for costly emergency operations by preparing for the disaster, rather than reacting to the aftermath,” Carlo Scaramella, climate change and disaster risk reduction coordinator for the World Food Program, said in a statement released in 2010.

In general, the policyholder targets particular weather threats. A farmer might choose a policy that covers drought, and a concert promoter might buy a weather insurance package that covers rain, thunder and lightning. The size of the policy must be enough to cover any losses sustained during adverse weather.

Insurance companies that sell weather policies use a weather “database” to calculate risks and payouts. They look at weather patterns in the region covered by the policy, as well as the times of year covered.

“We generally offer total weather insurance,” says David Friedberg, founder and CEO of WeatherBill Inc., a weather insurance provider in San Francisco. “Take a farmer’s situation. He can tell us his crop size and the county he lives in, and we can customize a policy before their season starts. It could cover freezes, a heat wave, too much rain or drought. We’ll automatically set (coverage) dates that make the best sense for that farmer’s crop and the county where the farm is located.”

On average, farmers pay about $25 an acre for weather coverage, a figure that Friedberg calls “a small cost of running their business.”

Rain, rain, go away

Of all weather worries, rain is the biggest threat to most of WeatherBill’s clients.

“We do a lot of outdoor rain coverage,” Friedberg says. “We cover the U.S. Open tennis tournament every year. Merchandisers and event producers know that if it rains, tickets have to be reissued and event revenues go down. Even the cost of sending employees home and bringing them back when the rain subsides can be a big cost.”

He adds: “Usually, the amount of rain is the basis for the amount of a claim payment the insured can get.”

If you’re considering a weather insurance policy, Friedberg advises you to visit your local insurance broker and ask for a free weather risk report. If he or she doesn’t have one, ask to be referred to an insurance company that can give you one.

When push comes to shove, weather insurance is the ultimate rainy day fund. If your living depends on what happens outdoors, then you may not want to go outside without it.

–Brian O’Connell

View the original article here