Weather risk management
| Pages | 164-168 |
| Date | 01 June 2003 |
| Published date | 01 June 2003 |
| DOI | https://doi.org/10.1108/13581980310810480 |
| Author | Carole Edrich |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
Weather risk management
Carole Edrich
Received (in revised form): 25th February, 2003
KAI Corporation (Risk), PO Box 21729, London E11 2WF, UK; tel: +44 (0)20 8530 3933;
fax: +44 (0)20 8530 6593; e-mail: cedrich@kaicorporation.com
Carole J. Edrich, the founder and Principal
of KAI Corporation (Risk) has over 16
years’ experience in the management of
enterprise and operational risk and high
impact change. Chief Examiner for the UK
Government’s management of risk course,
she is involved in leading-edge research
as well as the provision of consultancy,
workshops, continuing professional devel-
opment and master classes to a variety of
international commercial organisations
and academic institutions. She success-
fully developed and implemented the
world’s first enterprise-wide risk and
opportunity management methodology,
with the result that all but one of KAI’s
internal and external projects were com-
pleted on time, and all have been com-
pleted to budget and to the client’s
satisfaction. She is in the process of writ-
ing a comprehensive series of books on
risk management, corporate governance
and associated disciplines.
ABSTRACT
KEYWORDS: weather trading, weather
derivatives, regulatory context, weather
forecasting, global fragility
This paper on weather risk management pro-
ducts examines how and why they were initi-
ally developed, why they are different to other
risk products, their coverage and structure, and
how weather product trading has grown. Since
weather derivatives are usually structured in the
same way as insurance, options or futures con-
tracts, all of which are subject to regulators, the
regulatory context is also examined. From this,
it then examines some of the constraints in
development of effective weather products and
the way a growing awareness of the impact of
weather on operations is changing the trading
scene, and leaves the reader with a view of cur-
rent and future challenges.
INTRODUCTION
Almost every business activity is affected
by the weather. Research shows that over
80 per cent of economic activities are
dependent on the weather and the Chi-
cago Mercantile Exchange estimates that
losses caused by weather volatility are as
much as 30 per cent of US Gross Domes-
tic Product (GDP). Energy producers and
consumers, retailers, supermarket chains,
food and drink manufacturers, health ser-
vices, leisure, tourism and agricultural
businesses are just a few. Even Boots, the
UK chemist, is affected by weather. Five
years ago their half-year report noted that
its UK performance was held back by the
poor summer which led to a lower than
expected demand for sun-care related pro-
ducts.
WEATHER RISK AS AN OPPORTUNITY
In the late 1990s, a number of leading
trading companies recognised weather risk
as an opportunity to produce innovative
risk management products to help organi-
sations manage this class of natural hazard
risk.
Page 164
Journal of Financial Regulation and Compliance Volume 11 Number 2
Journal of Financial Regulation
and Compliance, Vol. 11, No. 2,
2003, pp. 164–168
#Henry Stewart Publications,
1358–1988
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