Daily news mass media readily inform people about numerous natural disasters happening throughout the world. Such extreme weather conditions as floods in India and Louisiana, severe drought in California paralyze the life of entire states and have a harmful impact on the economy.
According
to Allianz Global Corporate & Specialty SE reports, only during the
last three years insurers around the world paid $70 billion a year for
claims related to extreme natural phenomena. In the 1980s the annual
amount of payments for such claims consisted only $15 billion. By
comparison, 905 natural disasters took place around the world in 2012,
93% of which were weather related ones, and they led to losses in the
amount of $170 billion.
However,
also less devastating in its power weather conditions have a strong
impact on the economy. Furthermore, the losses emerging due to weather
changes exceed the annual losses from natural disasters significantly.
Even small deviations from the expected weather conditions can greatly
affect the financial situation in various industries.
Retail
industry is highly susceptible to risk of unstable weather. Abrupt
change in the ordinary climatic conditions, such as sharp cooling or
warming often turns for business into bigger losses than ones from the
most serious natural disasters. For instance, an unusually mild winter
provokes a drop in demand for warm clothing, and vice versa in cold
summers demand for beach accessories and refreshments also falls.
Excessive precipitation during weekends can result in people’s
reluctance to leave their houses. Sudden pressure fluctuations
negatively influence the well-being of customers who are weather
dependent, and this fact can greatly affect the attendance of shops and
shopping centers even in visually good weather.
Nowadays
there exist solutions for weather risk management which can protect
retailing companies from revenue fall in various cases when shopping
centers are empty due to bad weather or in situations when demand for
seasonal items is different from expected. The fact is that over the
past few years the availability of weather data
has increased significantly. Processing of huge amounts of data does
not take a lot of time and has become much cheaper. Moreover, in modern
conditions one can measure and analyze not only the basic weather
parameters such as temperature, humidity, wind force and wind direction,
but also intensity of rain, sunshine or snowfall.
Modern technologies allow getting information on the current weather and providing accurate forecast not only for cities, but also for a specified place worldwide. Comparing the historical weather data
with the statistics of growth and decline in demand for certain
products, it is possible to anticipate the consumer involvement and to
hedge weather risks in advance. Weather risk management gives
opportunity for companies to perform their strategies such as
diversification and adaptation of production for expected weather
conditions.
