When it rains, it pays: Parametric weather insurance

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When it rains, it pours, says the old proverb. But, a new type of parametric weather insurance is gaining popularity, and because of that, superintendents might start saying: When it rains, it still pays.

Parametric weather insurance isn’t necessarily a new thing, says Eric Anderson, a consultant for Vortex Weather Insurance. What’s new is its availability for the golf industry, an industry ruled by weather.

Vortex sells supplemental weather insurance policies underwritten by Mitsui Sumitomo Insurance USA. And, facilities or tournaments can buy policies determined by a rainfall threshold to cover the time of the event.

“If a golf club has a tournament from 8 a.m. to 1 p.m., it’s $500 a player and there are 100 players, it’s important to have a weather risk plan in place,” Anderson says. “The event has $50,000 of at-risk revenue that can be lost due to bad weather. We offer a financial solution that can help.”

The party taking out the policy determines a rainfall threshold appropriate for the event. Rainfall amounts could be as low as 1/10 inch or as high as more than an inch. If the rainfall total during the insured time meets or exceeds that threshold, the policy will trigger, and the course or tournament recovers the expense.

“If the club can recover the revenue lost due to rain using Vortex Weather Insurance, they can apply those recovered funds toward other business expenses,” he says.

Vortex uses independent government-generated hourly precipitation totals from thousands of weather stations around the country.

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Who knows the course best?

Anderson says it’s important for superintendents to understand that this is available as they can help determine what threshold to set a premium at and if there are any drainage issues on the course that would impact playability.

“The premium decreases with higher rainfall thresholds, so if the course drains well, it would be best to choose a three-quarter-inch or 1-inch threshold,” he says. “The probability of it raining an inch versus one-tenth of an inch is less probable, so the cost is going to be less.”

Anderson says if a golf event has a rainout, the lost revenue can have a ripple effect on other parts of the course.

“If the course isn’t playable, this ultimately affects the course’s bottom line and can take away funds that would otherwise be used toward new tractors, golf carts and other equipment needed to keep the course pristine,” he says.

But, there is also a secondary benefit. If a rainfall amount is met, but the course is deemed playable and the event can continue, the insured party still receives payment for the policy.

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What it does and does not do

It’s important to understand that the insurance offered by Vortex Weather Insurance is just that: weather insurance. Policies are available that also include hot and cold temperatures and a combination of rain and temperature parameters. Policies can also cover as little as a two-hour event to an entire year.

“It’s parametric, hourly, customizable insurance,” he says. “Many people don’t understand the term ‘parametric,’ but it really is a simple concept once explained. If a policy is triggered, it pays out. Unlike traditional insurance, it’s not indemnity based. If the policy threshold hits, you’re getting a check in roughly two weeks.”

Watching the next day’s weather forecast won’t put the odds in favor of the club, however, insurance must be purchased no fewer than 15 days before the event.

“If it’s going to rain the next day, you can’t buy a policy the day before,” Anderson says.

Policies can cover a variety of golf-related events, such as tournaments, seasonal coverage, fundraisers, pro-am tournaments, etc.

Anderson is quick to point out that this insurance would not cover catastrophic weather events such as a hurricane. However, if a course opted to purchase insurance for an event or seasonal coverage, and it met the policy’s parameters, the precipitation would be covered.

“It doesn’t matter where the rain comes from,” he says. “Rain is rain. If it hits the threshold when a hurricane came, and you bought the insurance, you’re getting a check for the amount you’re insured.”

Peace of mind

That peace of mind is why Geoff Lofstead, executive director of the South Florida PGA, says his section chose to purchase a policy for its Pro-Pro Championship.

“Having the insurance was a stress reliever knowing that regardless of the weather over the two days of the championship, we would not have any financial ramifications,” he says.

Lofstead worked with the course’s superintendent and Anderson to set the parameters based on current conditions and drainage. And, Vortex Weather Insurance also provided data on annual rainfall on the selected dates.

“Then, it was a matter of deciding on the cost of the insurance against the amount of rainfall we could have received,” he says.

Jeff Voorheis, executive director of the Metropolitan PGA, says his section did some cost/benefit analysis to help determine the proper parameters to cover a large pro-am event for the section’s foundation. He says it was a confidence boost in hosting the fundraiser for all parties involved.

“There will be tournaments and events where the investment makes more sense than others,” Voorheis says. “Almost every club has a few events, outings or fundraisers each year that likely come immediately to mind as financially critical and would readily invest in this type of protection.”