Wednesday 18 September 2024 - Thought Leadership

Finding gold at the end of the rainbow: insuring against a wet summer

The Great British summertime is infamous for being wet and dreary, yet each year, outdoor musical events are still able to draw crowds in their thousands. While festival-goers are willing to brave the rain to experience a live show, they often opt to stay indoors and away from the concert until their favourite artist is set to perform. This year’s wet weather meant that festival vendors primed to sell drinks, food and merchandise to budding fans struggled to break even at what should have been a bumper event. If a festival or concert is cancelled, standard event cancellation cover kicks in. However, few businesses buy or are even aware that they can hedge against the impact of the British weather.  

The issue of a reduction in revenue due to poor weather is not limited to festival vendors, all businesses with outdoor operations have a vested interest in clear skies.  

A wet summer month is bad news for businesses, particularly small businesses reliant on stable weather for their operations. In a survey conducted in 2022 by pub trade news publication The Morning Advertiser, 82% of pub operators reported that wet weather had ruined their summer trade.  

While the closure of hospitality spaces or cancellation of local events for weather-related reasons can lead to claims on their insurance policies, protection can also be offered to vendors who do not have to halt operations completely but still miss out on trade due to poor weather conditions.  

Insurers must account for non-extreme weather 

The insurance industry is key in mitigating against the most devastating impacts of extreme weather as well as climate and natural catastrophes. Without insurance, businesses would not be prepared for the severity of potential disruptions caused by climate change nor have the tools to reduce their part in global warming. 

However, the focus of insurers should not just be on the extreme events, or whether an event goes ahead or not. The success of businesses involved is not that binary. In the contingency market, insurers must consider how they can assist small businesses, not just be there to pay out when festivals or large scale cultural and sporting events are cancelled.  

Wet summers preventing traders from breaking even are set to become increasingly common. Paradoxically, the warming of the climate could cool down much of Europe by disrupting the Atlantic Meridional Overturning Circulation. Research by UCL showed that the weakening of the winds which drive the Gulf Stream could reduce the circulation of heat, further affecting the weather in Europe. This cooling down of Europe, particularly in the Northern most areas, could spell for colder winters and wetter summers.   

Much as Brits like to own the wet summer, loss of footfall from miserable weather is not just a UK problem; much of Europe is also affected. In Oslo, Norway, rainy weather conditions have led to businesses losing up to 100,000 NOK a day, which is set to total millions in losses over the rest of the summer.  

The need to cover this type of risk is clear. In addition to being a key partner in the fight against climate change, insurers are integral to the functioning of the real economy and consumers' everyday lives. From snow on Christmas leading to the cancellation of pub reservations and loss of revenue during one of their most busy seasons to when it rains in July, businesses should be using insurance solutions to help protect profit flows.