Monday, February 25, 2008

Hedging Old Man Winter

As everyone's favorite textbook notes, "insurance is a wealth-creating transaction that transfers risk from someone who doesn’t want it (the risk-averse consumer) to someone who doesn’t mind it (the risk-neutral insurance company)." We're all familiar with traditional insurance options like life and car insurance. But, how about weather insurance?

A recent article in Newsweek mentions specialty firm Storm Exchange of New York that offers insurance against weather-related risks. Hedgers can also trade contracts on the Chicago Mercantile Exchange. Last year, over $19 billion in weather contracts traded on the Exchange.

With all of the snow in the Midwest this year, a snow insurance policy would have been nice. Shoveling the driveway for what feels like the 100th time wouldn't seem so bad if I knew a check was coming in the mail.

1 comment:

  1. Jeff Hamlin - jeff@weatherbill.comFebruary 26, 2008 at 10:31 AM

    Check out www.weatherbill.com. If you go to the 'Quote and Buy' page you can see exactly what premium would be charged to give you coverage against any weather event (rain, drought, snow, heat, cold). WeatherBill pays companies for bad weather and allows users to see what it would cost to get bad weather coverage for free via their website.

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