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In the outdoor amusement industry, you live or die according to the weather. Or do you? A Swiss company is offering to insure parks and attractions against the rain. Rosanne Vandeweerdt explains.
December 2010, just before Christmas, most Californian theme parks were forced to close or trim their hours due to heavy rainfall. You may even have had to do the same at the height of summer at your venue.
It’s undeniable that for parks, zoos or any other outdoor attraction, attendance depends highly on the weather – even in sunny California, as it goes to show. Especially during the holiday season, the elements must co-operate for success. Some amusement parks experience up to 90% less visitors when it rains – turning a “peak” day into a disaster.
As we cannot control the weather, or sometimes not even predict it in this increasingly unstable climate, the industry is craving simple solutions to manage this financial risk. Weather certificates are receiving increasing attention.
Despite the fact that derivatives, used for speculation, got bad press during the financial crisis, they are actually a very effective hedging instrument. Mostly used in the context of equities, commodities and foreign exchange, derivatives can also be used to protect businesses from losses due to adverse weather.
Several amusement parks have already discovered the advantages of weather certificates. While such certificates are available for various weather parameters (rain, cold, heat, sun, snow), most parks purchase protection against rainy days. One of the leading companies in weather risk management is CelsiusPro from Zürich, Switzerland.
“Weather certificates are a great tool to eliminate your downside risk and earnings volatility caused by adverse weather conditions“, says CEO Mark Rueegg. “They are easy to customise to fit your needs and budget.”
The procedure is simple: The client selects a weather station close to where their attraction is located, then defines what amount of rain per day is critical to their operation (1cm for example), and lastly determines the payout they would like to receive if that rainfall is exceeded. Furthermore, they can specify their own risk period, such as summer holidays or national holidays and weekends, to protect their business when it’s most vulnerable.
One of the main advantages this offers over regular insurance is that there’s no need to submit a claim or prove losses; the weather measurements are taken from official national weather stations, and if the defined parameters occur, clients will be paid out automatically.
Robert Weber, CEO of CelsiusPro’s US partner Rainprotection.net, explains further: “Zoo New England in Boston, Massachusetts, specifically wanted to secure its financials during the Christmas and Easter holidays when the zoo usually sees a lot of visitors. Unfortunately in winter and spring the weather is also quite unstable. When it rains, people tend to stay at home or go to the movies instead. For the zoo, a customised weather certificate offered the perfect solution.”
Freizeitland Geiselwind, a mid-sized theme park in the south of Germany (other German clients include Europa-Park), benefited last year from a large payout after a very rainy August. The claim played a significant part in stabilising earnings and compensating for the drop in revenue. The coming summer the park will again count on weather derivatives to secure its bottom line.
“Last year we had a rather rainy summer, so we paid out a lot,” reveals CelsiusPro’s Teresa Schorstein. If this all sound too good to be true, Schorstein adds, “We currently hedge ourselves back to back with SwissRe though which means we do not take to risk onto our books.”
And even when a payout isn’t made, as was the case in 2009 at Freizeitland Geiselwind, parks tend not to regret the purchase of a weather certificate as the profits of the sunny season easily cover the cost of the premium paid.
“Most parks have always endured rainy days without weather risk management products,” acknowledges Rueegs, “and many companies don’t feel comfortable spending money on a product they are not familiar with. This is why we created dummy accounts: you can try out any number of rain, temperature and snow contracts at over 2,000 weather stations. It’s a great way to get familiar with the concept.”
CelsiusPro AG specialises in weather risk management, collecting data from weather stations across Australia, Europe and North America. CelsiusPro was winner of the Swiss Insurance Industry Award for Innovation in 2009.