Remember HURLOs? Hurricane Risk Landfall Options? They were launched in October 2008 by Weather Risk Solutions, LLC (WRS) and promised a mutualized marketplace for hurricane options (our previous coverage here and here). To date they’ve been dabbled with by investment professionals but we haven’t heard a great deal more until today.
This article from the Boston Globe gives us new insight into what WRS have planned for their HURLOs product and it sounds very interesting.
WRS want to bring the ability to hedge against hurricane risk to the masses. They want homeowners to be able to buy HURLOs for their local area and then receive payouts should a hurricane hit them and their property. The way HURLOs work is simple and very similar to a betting pool; when a hurricane forms and threatens landfall customers can purchase an option for their region, if a hurricane hits then all customers who picked the location of landfall correctly will share the pot of money. A really simple and easily understandable idea (which any new financial product has to be).
WRS don’t see HURLOs as a replacement for traditional insurance, rather a complementary financial product. They see homeowners being able to cover their hurricane insurance policy deductibles with profits from HURLOs trading. WRS have been smart and launched an online platform where potential customers can trade the options as part of a game without using real money, a great way to demonstrate their ease of use and potential to provide extra layers of protection.
The final hurdle for WRS is receiving approval from the U.S. Commodity Futures Trading Commission to allow HURLOs to be marketed as a new consumer financial product or not. We hope they receive approval as this product could prove a valuable insurance top-up to any people living in hurricane prone areas.