Wise weather solutions

Swiss Re has promoted weather index solutions in China over the past few years. While weather exposure is well known in various industries such as agriculture and energy, weather solutions are still new to this country. The emergence of weather solutions makes proactive weather risk management possible. With increasing knowledge on weather risk management, more and more companies and individuals have started to utilise weather solutions to limit their weather exposure to a bearable level.

For example, Swiss Re recently partnered with China Pacific Insurance and launched a temperature index insurance product for hairy crabs. This product compensates the hairy crab farmers for the loss of output due to persistent high temperature, measured by the weather data provided by meteorological stations. This marks the first time of the aquaculture industry adopting temperature index insurance in China.

The public’s perception of weather risk in China is changing. Weather risks were perceived as force majeure and the managers hence were not held accountable in the past when the public were not aware of weather solutions. In the future, however, the public will question whether the managers have made appropriate decisions on risk management and whether there would have been better solutions for weather risks. If a company manager is aware of his weather exposure but takes no action against it and merely hopes for good fortune to prevail, he is actually gambling with the earnings of the company against the weather conditions

A growing number of corporates will choose to transfer part of their weather risks to professional risk bearers in order to reduce disruption to company operations and to concentrate the corporate resources on more strategically important areas.