The ENR Engineering News-Record cover story of January 29, 2020 entitled “Will Contractors Limit Weather Risk With Indexed Insurance?” by Scott Van Voorhis and Richard Korman highlights new and innovative approaches to weather risk management and weather decision support in the construction industry. “Brokers and insurers see new opportunities and important advantages for contractor weather-risk management in policies linked to data. The data quality is all-important.”
Standard warnings about how weather can affect revenue and profitability
As some of the many examples of adverse weather and weather events in recent history, heavy snows and high winds across the mid-Atlantic states over a January 2016 weekend impacted numerous projects such as Manhattan’s Hudson Yards development — forcing contractors to reallocate resources to remove snow and ice. The authors noted that public contractors’ “…financial reports contain standard warnings about how weather can affect revenue and profitability.”
Stronger signs of climate change and more turbulent weather patterns
However, four months after the January 2016 storm — not immediately after — the National Weather Service (NWS, www.weather.gov) fixed the final amounts for actual snowfall, given measurement errors and communication problems between readings in New York City’s Central Park and at nearby Newark Liberty International Airport (EWR). Recording ground truth is mission critical for construction “…amid stronger signs of climate change and more turbulent weather patterns.”
Parametric weather insurance — extra level of protection for contractors and owners
Accordingly, accurate weather data, both for forecast events and actual outcomes or ground truth, is at the core of parametric weather insurance — more common in market sectors such as agriculture and energy but less common in engineering and construction (E&C). Parametric weather insurance provides an extra level of protection for contractors and owners, who are attracted by the simplicity of clear triggers, fast payouts — and no claims process as with many other forms of insurance.
(Source: Van Voorhis, Scott, and Richard Korman. “Will Contractors Limit Weather Risk With Indexed Insurance?” ENR Engineering News-Record, Risk Management, BNP Media, 29 Jan. 2020, www.enr.com/articles/48588-will-contractors-limit-weather-risk-with-indexed-insurance.)
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