Weather Insurance

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Definition: Weather Insurance

Is an indemnity for losses that might arise due to abnormal weather conditions. Weather insurance insures against weather variations, it provides protection against financial losses incurred due to rain, snow, storms, fog, undesirable conditions or any other measurable adverse weather conditions. These abnormal weather conditions can be excess/scarce rainfall, or variations in wind speeds and humidity.

Weather being one of the most talked about topics, bad weather can cause financial hardship resulting in businesses being ruined/failed. Weather insurance is a means to allow one to control financial risks associated with adverse weather. Weather Insurance help manage financial risks due to exposure to unforseeable weather conditions. Weather insurance is essential for any business/event whose revenues are negatively impacted by inclement, adverse weather.

In the Indian context, agriculture contributes ~17% of the GDP of India and any deviation has a direct multiplier effect on the economy, hence the need for risk mitigation in agriculture is essential. Agriculture sustains a majority of livelihoods in India, and is highly dependent on ambient weather to provide socio economic fabric to Indian economy. Agricultural output is highly risk prone. Adequate weather insurance based protection enhances risk appetite of banks, farmers, micro-finance lenders and agricultural industries. Weather Insurance Policy is essential to deal with such adversely changing climatic trends.

Premium amounts vary depending on the regional and climactic parameters, however, weather insurance in India is currently based only on one parameter, deviation in rainfall. The premium is determined based on location and season, i.e based upon potential loss and likelihood of weather event happening. Fortunately, weather insurance is highly customizable.

Weather insurance is also used to insure expensive outdoor events contingent on good weather conditions, such as weddings, and concerts. The design of a weather insurance product generally requires collaboration with the government and its agencies.

There are broadly two kinds of insurable weather insurance:

• conditional weather insurance

• weather cancellation insurance.

Key Benefits of Weather Insurance

• Transparent, customizable leading to a high level of convenience for customers.

• Ease of administration leading to low management expenses.

• Scientifically developed product that is objective.

Example: Weather Insurance was offered to the farmers of Tamil Nadu for groundnut, castor and wheat crops. Cover was provided by the product against losses due to deficient rainfall. In the kharif season about 950 farmers covering 1200 acres purchased it. Sum Insured for these covers was Rs. 8.9 million rupees.

Example, a state fair/mela may wish to purchase weather cancellation insurance to compensate costs associated with running an outdoor concert in the circumstance it rains during concert hours.

Types of Weather insurance

• Weather cancellation insurance - reduces a company’s risk in planning outdoor events. If unfavourable weather does occur, the firm will not lose on their investment, due to insurance.

• Conditional weather insurance – offers companies the option to tailor promotional sales offers based upon the weather, this type of insurance is used to drive publicity and sales.

Product Structure

Weather insurance products are rated by insurance companies based on, the weather peril date, the location of the event, history of weather peril being underwritten, as well as the size of the policy insured.

• Peril Identification: involves appreciation of properties of the item/event insured with respect to nature of the economic activity and weather condition susceptibility.

• Index Setting: An index is created by assigning weights to critical time periods of crop growth, in case of agricultural insurance

• Probable back testing for possible payouts

• Pricing: determined based on expectation of loss, historical losses & company management expenses. Premiums will be based on historical records of the weather.

• Monitoring: collection of weather data during the policy coverage period & associated assessment.

Unique weather insurance products include snow insurance, income stabilization, temperature insurance coverage etc. allows anyone the capability to control & mitigate financial risks connected with adverse weather. The weather insurance is an unique insurance product that can be used to stabilize the financial outcome on adverse weather conditions.

Target insured

• Farmers

• Banks

• Financial institutions / companies extending credit facility

Typical Weather Insurance policy coverage

• Cost of inputs

• Increased operational costs of agricultural or non-agricultural economic activity

Buyers of weather insurance include agriculturalists, fairs/festivals, concerts, event management firms, sporting events, parades, air shows, etc


• Reduces risks of planning outdoor events.

• Minimizes the financial impact of weather on business operations.

• Weather insurance can assist in unforeseen weather conditions.

• Protects and insures farm incomes

• Relatively quick settlements


Hence, this concludes the definition of Weather Insurance along with its overview.


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