Years ago, we would purchase rain insurance for the St. Patrick’s Day Parade. In 1788, Benjamin Franklin first proposed crop insurance for storms, blight and insects; the first tornado insurance policy was issued in 1865. The Tobacco Growers’ Mutual Insurance Co., of North Canaan, Conn., wrote the first hail insurance policy in 1887. As noted in a previous column, a new type of coverage for weather began with weather derivatives, or coverage involving low-risk and high-probability weather. It also represents an agreement or formal contract between two or more people or companies designating the price of a given asset. Similar to an insurance policy, derivatives are used as a contractual mechanism to hedge risk. Weather derivatives are structured using standard weather indices and are applied to weather situations. Fastcast: Humid.
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