Analytics

Betting on the Weather

Parametric weather products offer event organizers improved protection of revenues in an increasingly unpredictable climate.
By: | September 14, 2016 • 5 min read

Apart from an attendee dying, rain is perhaps the worst thing that can happen to a festival,” said Christian Phillips, contingency underwriter at Beazley. “An angry few hours from Mother Nature can cost hundreds of thousands of dollars, dampening profits even for sold-out festivals and negatively affecting on-the-ground consumer spending.”

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Christian Phillips, contingency underwriter, Beazley

Yet according the insurance industry, many event and hospitality companies continue to find themselves inadequately covered against losses that could arise from adverse weather, or are unaware of the insurance coverage options available to them.

“A protection gap exists on weather coverage for events companies,” said Tanguy Touffut, global head of parametric solutions at AXA, who believes those buying coverage are in the minority.

“However, increasing weather anomalies as a consequence of climate change, as well as the emergence of innovative insurance solutions such as parametric insurance, are fueling increased demand for such covers from events companies.”

Typically, event organizers must choose between event cancellation coverage — a broad policy that compensates the insured if their event is cancelled for a multitude of reasons beyond their control — or a parametric weather policy that pays an agreed sum if a certain weather trigger is hit, for example, half an inch of rain over four hours.

While the weather policy won’t cover against the wide range of perils the cancellation policy would (such as fire, terrorism or road blockages), it does cover against the lost income from attendees leaving a weather-affected event early. But that kind of loss wouldn’t be covered under a cancellation policy because the event must be cancelled to trigger a payout.

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“This presents companies with a tough choice. They usually don’t have the budget for both policies, and weather can be a little more expensive as it is a stated value policy.

“If the client picks the wrong coverage and loses money, they will be upset,” said Marlene Benoit, promotions and events leader for broker Lockton.

Beazley has gone some way to bridge the gap with a new product that is a hybrid of both types of coverage. As well as offering broad cancellation cover, the product also establishes a weather trigger on which it will pay a fixed sum to compensate for lost revenue.

Benoit said she believed other insurers may soon introduce similar products.

“When the industry comes up with something unique in the marketplace, others will follow, particularly when it is well-received and there is demand.”

Number Crunching

Weather observation techniques and data gathering has improved markedly in recent decades, and insurers now have a data bank of at least 30 years of high-quality data as a base for their underwriting.

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Tanguy Touffut, global head of parametric solutions, AXA

“Additionally, the capacity to process these data has improved tremendously, which gives us very sophisticated indexes that better reflect the clients’ risk,” said Touffut.

However, gaps in coverage remain.

“We allow the insured to choose a threshold amount of rain at the front end of the policy. However, we can’t cover every eventuality,” said Phillips.

“If they insure against half an inch of rain but it rains 0.49 inches and people still leave their event, there will be a gap in cover.”

“Due to budgeting, companies may choose a threshold that is too high, and when they have a weather claim, it doesn’t hit the trigger mark, so they end up paying for a policy that doesn’t pay out,” said Benoit.

Consumer Data

Indeed, while improved climate data makes weather parametrics relatively reliable, attendee spending behavior is harder to predict.

“We try to bring our knowledge of what we’ve seen in the past to give guidance, but it is still subjective,” admitted Phillips.

If more than one-third of an inch of rain falls, some attendees will normally leave an event, Phillips said, particularly if the rain falls persistently over several hours rather than in a short, sharp downpour. Clients typically stand to lose around 20 percent of their projected revenues from weather-related departures, though this figure could vary depending on the nature of the crowd, he added.

Combining weather data with Big Data on consumer spending habits to model the effect weather has on behavior at events seems an obvious next step to enhance the insurance offering.

Insureds can improve their chances of securing appropriate coverage by delving deep into their own revenue histories. “We ask the client for historical cancellation and revenue data over the longest period possible,” said Touffut.

Combining weather data with Big Data on consumer spending habits to model the effect weather has on behavior at events seems an obvious next step to enhance the insurance offering. However, James Ingham, head of renewables at risk analytics specialist Sciemus, said that in an age when “data is king,” it may be hard to get data providers to collaborate.

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“It can be done, but you would need a large provider like Google Public, for example, to host data covering multiple events across multiple demographics and geographies over a number of years in order to give event organizers full confidence in the inferences. You would also need a secure neutral environment to encourage Big Data providers from other areas such as credit card providers to also collaborate,” he said.

Touffut added that as the quality and amount of data and Big Data processing methods continue to improve, “indexes will become more precise and the models used to design parametric insurance products will even more accurately reflect the clients’ risk.”

“Furthermore, as parametric insurance fixes most of the ‘pain points’ of traditional insurance, both from the claims view and from the purchasing view, we expect this type of insurance to greatly propagate and eventually cannibalize some forms of traditional insurance,” he said.

But as Phillips pointed out, it is often only after an events company suffers a damaging loss that they will consider seeking cover. “Someone may have run an event for 30 years and never had a problem, but weather is changing. Companies can’t afford to rest on past weather patterns.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]