Does Your Business Need a Weather Risk Protection Plan?


If anyone doubts that snowfall is becoming more unpredictable, they need only look back over the past few seasons: record snowfall during the winter of 2010/2011, then a freak Halloween snowstorm in the fall of 2011, followed by practically no snow at all during the winter of 2011/2012.

The prediction for the winter of 2012/2013? Depending on which weather expert you consult, it will be either a severe winter with lots of snow, or a mild winter with little snow. In other words, no one really knows.

For businesses in which snowfall, or the lack thereof, can significantly affect the bottom line, the onset of the snow season can induce a stomach-churning sense of anxiety.

One-third of businesses around the world are impacted by the weather in some way, making them candidates for weather risk protection products to help stabilize revenue, protect profits, manage budgets, and cover increased expenses.

If you are an entertainment business such as a golf course, amusement park, resort, or beach or boardwalk concession; a construction company such as a concrete company, excavator or residential or commercial builder; or a transportation company in sectors including trucking, air freight and rail, you may want to look into how you can benefit from a weather risk protection plan.

Fortunately, businesses subject to weather risk can hedge the weather through the purchase of innovative insurance products customized to specific markets. In the past, such plans were non-existent or ineffective due to the lack of product offerings and the lack of access to complete weather data, which made it difficult, if not impossible, to accurately assess risk. The availability of such data, which draws on historical records at the zip code level, has provided a foundation for the development of products that protect both revenues and expenses. 

Now, getting back to those companies affected by winter weather risk such as snow removal professionals and those who purchase their services:

Snow removal professionals who sign seasonal, or fixed, contracts, in which clients pay a lump sum no matter how much it snows, worry that a season of heavy snowfall will drown them in expenses. Conversely, those who sign per occurrence-type contracts worry about the loss of revenues during a season of light snowfall. Most try to hedge the weather by signing a mix of contracts, but that is an imperfect solution.

Similarly, owners and managers of commercial real estate such as retail stores, shopping malls, office buildings and commercial parking lots who purchase seasonal contracts with the aim of keeping a lid on expenses worry about losing out on the potential cost savings if the winter is unusually mild. But if they purchase per occurrence-type contracts, they face excessive charges during years of heavy snowfall, which means they have no budget certainty.

Here’s how weather risk protection plans work: snow removal professionals with seasonal contacts can purchase policies that protect their businesses against the heavy expenses—i.e. additional costs for labor, equipment and supplies such as salt—that can severely cut into profits during seasons of heavy snowfall. The protection plan sets the equivalent of a cap on seasonal snowfall, providing them with a minimum profit floor. 

Similarly, they can purchase protection on per-occurrence type contracts against revenue losses during seasons of light snowfall, which amounts to the cash equivalent of a minimum snowfall. With revenue protection, they have the peace of mind of knowing that their contracts will deliver a minimum revenue without having to give up the potential upside of a per-occurrence contract during a season of heavy snowfall. 

Weather risk protection products are also available for commercial property owners and managers. By buying a per occurrence-type contract that is protected by a weather risk protection plan, they have the security and budgetary certainty of a fixed contract without the need to pay a large upfront sum, but they can also reap the financial benefit of a per occurrence-type contract during a season of low snowfall.

If you are a winter weather-dependent business that is preparing for the snow season—or, indeed, any business that is affected by routine weather events—you should remember that you don’t have to grit your teeth in anticipation of the worst. Though Mother Nature may be ever more capricious, the risk associated with weather can be mitigated through a weather risk protection plan. Most of all, such a plan will help you sleep well at night knowing that your bottom line is protected.