Major Growth in Some Business-Related Uses of Climate Information

David Changnon Meteorology Program, Department of Geography, Northern Illinois University, DeKalb, Illinois

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Stanley A. Changnon Changnon Climatologist, Mahomet, Illinois

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Abstract

Uses of climate information have grown considerably in the past 15 years as a wide variety of weather-sensitive businesses sought to deal effectively with their financial losses and manage risks associated with various weather and climate conditions. Availability of both long-term quality climate data and new technologies has facilitated development of climate-related products by private-sector atmospheric scientists and decision makers. Weather derivatives, now widely used in the energy sector, allow companies to select a financially critical seasonal weather threshold, and, for a price paid to a provider, to obtain financial reparation if this threshold is exceeded. Another new product primarily used by the insurance industry is weather-risk models, which define the potential risks of severe-weather losses across a region where few historical insured loss data exist. Firms develop weather-risk models based on historical storm information combined with a target region’s societal, economic, and physical conditions. Examples of the derivatives and weather-risk models and their uses are presented. Atmospheric scientists who want to participate in the development and use of these new risk-management products will need to broaden their educational experience and develop knowledge and skills in fields such as finance, geography, economics, statistics, and information technology.

Corresponding author address: David Changnon, Dept. of Geography, Northern Illinois University, DeKalb, IL 60115. Email: dchangnon@niu.edu

Abstract

Uses of climate information have grown considerably in the past 15 years as a wide variety of weather-sensitive businesses sought to deal effectively with their financial losses and manage risks associated with various weather and climate conditions. Availability of both long-term quality climate data and new technologies has facilitated development of climate-related products by private-sector atmospheric scientists and decision makers. Weather derivatives, now widely used in the energy sector, allow companies to select a financially critical seasonal weather threshold, and, for a price paid to a provider, to obtain financial reparation if this threshold is exceeded. Another new product primarily used by the insurance industry is weather-risk models, which define the potential risks of severe-weather losses across a region where few historical insured loss data exist. Firms develop weather-risk models based on historical storm information combined with a target region’s societal, economic, and physical conditions. Examples of the derivatives and weather-risk models and their uses are presented. Atmospheric scientists who want to participate in the development and use of these new risk-management products will need to broaden their educational experience and develop knowledge and skills in fields such as finance, geography, economics, statistics, and information technology.

Corresponding author address: David Changnon, Dept. of Geography, Northern Illinois University, DeKalb, IL 60115. Email: dchangnon@niu.edu

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