Weather derivatives for wildfires? Could it work?


An interesting article has been released on the Livescience website. Written by Joanne Ho of the University of Washington it discusses some research she has been undertaking into ways to protect communities against wildfires and focuses on reinsuring the insurers who provide the cover for California fires. It mentions that by ensuring that people are covered sufficiently it could even help protect firefighters by making protection of homes less of an issue if it is understood that they will be recovered financially. The article goes on to discuss the use of weather derivatives as a mechanism for hedging wildfire risk.

Read the full article here.

There are definitely defined and measurable weather conditions which can cause wildfires but how you could actually correlate those to a fire occurrence accurately enough to create a traded market I am unsure. There are other factors involved such as accidental fires, malicious starting of fires or even fires started by a piece of glass which helps intensify the suns rays on some brush. Would any trader, insurer or exchange be willing to trade in or facilitate this kind of market with those kinds of unknowns?

It’s a very interesting thought though and certainly deserves further investigation. Creation of markets to help shore up insurers exposed to wildfire would help lower rates for homeowners significantly in exposed areas and also create more opportunities for those involved in the risk transfer market.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.