Weather an ‘undermanaged risk across all kinds of business’

Brown, who leads Swiss Re Corporate Solutions’ sales team for weather derivatives and insurance protection, says these abnormalities range from slightly warmer winters to rainy summers or less wind than usual.

“It’s difficult to find a business that is not somehow affected by the weather,” he says.

“The most directly affected businesses are the utilities because a lot of their businesses, such as air-conditioning, heating and selling gas, are affected by temperature.”

Other industries such as construction, retail and travel are also heavily dependent on the weather, says Brown, who is a Weather Risk Management Association board member.

Consequently, natural catastrophes have risen up the risk management agenda and firms in low-risk locations now commonly buy risk transfer solutions to protect associated or affiliated operations in hazardous areas.

Nevertheless, Brown says it is still “an under-hedged and undermanaged risk across all kinds of business”.

Walker Institute for Climate System Research postdoctoral scientist Dr Nicholas Klingaman says that anticipating unusual weather is not an easy science, but the expectation of the El Niño phenomenon to occur at the end of the year is something for businesses to consider.

“Countries such as Brazil, Argentina, Australia, Indonesia, the Philippines, India as well as East Asia receive less rainfall during El Niño,” he says.

“We have already seen an impact on the Indian monsoon, running about 30% below normal in terms of the rainfall, which is extremely deficient.

“A dry season is considered to be anything less than 10% below normal and this season has already been 30% [below normal].”

The impact of reduced rainfall in India – where the agriculture is largely rain-fed – is significant, according to Klingaman.

“The models tell us at this point that we have a 75% to 80% chance of this year being an El Niño year, but most of them are predicting a fairly mild El Niño,” he adds.