Weather the Costs of Winter

By Devine, Tim | Public Finance, December 1, 2015 | Go to article overview

Weather the Costs of Winter


Devine, Tim, Public Finance


Weather forecasts for winter 2015/16 go from relatively mild but unsettled conditions to 36 days of snow. Extremes of weather can have substantial effects on local authority budgets; insurance may compensate for some costs due to severe weather, but these usually concern direct damage or injury.

Councils can call upon the Bellwin scheme for urgent financial assistance where "an emergency or disaster involving destruction of, or danger to, life or property occurs". However, in the last prolonged period of exceptionally cold weather in 2009, only four councils received such payments.

There is no automatic entitlement to financial support under this scheme and ministers decide cases individually; Dumfries and Galloway Council had a Bellwin claim for £1.7m rejected in 2013 as most of its costs related to clearing and repairing roads and were deemed ineligible.

While a standard insurance policy would not cover increases in cost due to weather, it is possible to source protection via other risk financing solutions such as weather derivatives.

As a financial instrument, weather derivatives can be used as part of a risk management strategy to reduce risks associated with adverse conditions, such as losses resulting from deviations in temperature from the norm. For example, a 'cooling degree day' option may look at average temperatures over a defined period. Should temperatures drop below a figure agreed beforehand, a payment would be triggered to cover the policyholder's increased costs.

Alternatively, protection could be offered against temperatures of, say, 10? …

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