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When it rains, we pay New concept helps small businesses "weather" everyday conditions By Phil Zinkewicz Hurricanes, tornadoes, floods—these and other weather-related catastrophes can and have shut down the economies of entire regions, as the ravages wrought by Hurricane Katrina and her sisters in 2005 amply demonstrate. Depending on the insurance coverage they have in place, businesses that are damaged or destroyed by a natural catastrophe may be able to recoup sufficiently to rebuild. But what about the loss of revenue that a smaller business may experience simply because of a rainy weekend, or, on the other hand, a string of warm, sunny days? Clearly, traditional insurance doesn’t cover such events, but there is an alternative that allows smaller businesses to manage the risk of normal variations in weather. Meet WeatherBill, a firm backed solely by individual and institutional investors. Formed last year by a group of Google team members and based in San Francisco, WeatherBill is intended to assist small and medium-sized businesses in recognizing how weather affects their bottom lines. All of us know only too well how catastrophic weather conditions—blizzards, hurricanes, tornadoes—can devastate large regions of the country. The threat to the economy is obvious. But that’s not what we’re talking about here. Rather, we’re talking about how everyday weather conditions can affect small and medium-sized businesses that are also important to the economy. Rough Notes spoke with David Friedberg, CEO of WeatherBill, to find out how the concept came to be and what he hopes to accomplish. “A couple of years ago, I was living in San Francisco near the waterfront area,” says Friedberg. “I noticed that there was a guy across the road from me who had a bike rental shop. I also noticed that, when it rained, his shop was closed, and I began to wonder how these rainy days affected his profits. I then began to notice coffee shops. On cold, rainy days, these shops were much more populated than on warm, sunny days. Lines at the movie theaters were longer on days of inclement weather. So I began to wonder how normal weather changes affect the bottom lines of small and medium-sized businesses. That was the genesis of WeatherBill.” Friedberg says that WeatherBill provides an online platform that allows companies to purchase “contracts” that automatically pay for adverse weather conditions without any claims hassle. A retailer, golf course, or production company that might lose $20,000 in potential revenue during an unusually rainy weekend could be protected for as little as $1,000, according to Friedberg. “WeatherBill also provides free tools to help businesses understand how weather impacts their financial performance. Weather-prone industries—from construction to travel—can benefit from our offerings,” Friedberg says. Impact of weather “Weather has a staggering impact on the U.S. economy,” Friedberg continues. “Up to 30% of the GDP, valued at several trillion dollars, is affected. Weather impacts consumer purchasing behavior, crop growth, fuel costs, transportation, and manufacturing production, though only recently has there been significant growth around weather analysis and risk management. Before WeatherBill, only the largest and most sophisticated corporations were positioned to address weather risk. WeatherBill demystifies weather risk management and makes critical analytical tools and services accessible to all businesses, allowing them to quickly and easily correlate weather conditions with corresponding financial performance,” Friedberg explains. Part of what makes WeatherBill stand out, according to Friedberg, is an experienced team of mathematicians and computer scientists who have developed state-of-the-art weather forecasting algorithms. “In addition, their risk management relationships with large financial institutions ensure fast, competitive pricing of weather contracts and guaranteed payment to customers,” he says. “WeatherBill uses data from 200 National Weather Service stations, which allows any user who meets eligibility requirements of $1 million net worth to tailor a contract to their needs.” Continues Friedberg: “In the past, managing weather risk may have seemed impossible, or too good to be true. Now, however, it’s quickly and easily managed with WeatherBill’s comprehensive and easy-to-use service. Weather risk management is a necessity for a successful business interruption strategy. A ‘weatherproof’ plan offers competitive advantage by potentially reducing earnings volatility, freeing cash reserves, and reducing debt costs. Weather risk management is an integral component of sound business management,” he says. If those statements sound boastful, Friedberg has already convinced some heavy hitters in the investment community of their veracity. Already signed on as investors or advisors are Index Ventures, a leading European investment capital firm active in technology venture investing since 1996; New Enterprise Associates, a venture capital firm focused on helping entrepreneurs create and build new enterprises that use technology to improve the way we live, work, and play; and Howard Morgan, who has more than 25 years’ experience serving as mentor, advisor, and investor in entrepreneurial ventures. Individual investors also include notable leaders at Google, Merrill Lynch, Deutsche Bank, Viacom, and SVB Financial. An agency weighs in If WeatherBill is relatively new to the weather forecasting business, WKF&C Specialty, Inc., is not. WKF&C Agency, the parent of the specialty unit, acquired the well-known Good Weather Agency about four years ago, and that agency’s 30 years’ experience has been woven into WKF&C Specialty. Chris Ingraham of the specialty unit says she is aware of the recent creation of WeatherBill and the possibility of its bringing more competition to the weather insurance marketplace. “However, in order to determine whether this new venture will create viable competition, I would have to study their contracts and contract wordings. If a business at a ski resort buys a contract specifying they will be paid if there is ‘no snow,’ how do you define ‘no snow’? Is one inch, ten inches, or some other amount enough? What are the conditions as to how a buyer of such a contract is paid? The venture is still too new to analyze it thoroughly.” For example, at WKF&C Specialty, Ingraham says, a custom policy is created to meet a buyer’s specific situation and requirements, based on a computerized history of weather statistics and trends for the exact time of year at the covered location. Claims are based on measurable weather conditions, so official National Weather Bureau reports are used to qualify payments, she says. These are issues that WeatherBill must address as it grows, according to Ingraham. Friedberg believes that WeatherBill has already done just that and is ready to compete. * For more information: |
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