|I met with someone a few months back who explained to me that, for the retail end of the market, weather contracts could be used to hedge against the risk of financial loss to holders of an outdoor wedding - for example - in the event of rain (which might lead to losing deposits, damage to rented tuxes, etc). Or, for those in those "big square states" out west, losses due to tornados and such could be hedged against...to some extent. |
I wonder what the insurance/reinsurance industries will do to address the potent threat that such contracts present (if indeed they prove threatening). Possibly issue their own contracts or address the new market with OTC weather derivatives along the lines of swaps, etc.?