It’s hurricane season again. While we cross our fingers that it is a mild season, climatologists are predicting it could be very active. And one group of entrepreneurs is counting on it…
Enter Weather Risk Solutions.
Weather Risk Solutions is a new website which essentially allows people to bet on where a hurricane might land. The bet is made with a financial instrument called an “option”.
While many may shudder at the thought of entrepreneurs betting on hurricane strikes, the idea is not that uncommon. Investors have been trading natural disasters for years and markets already exist for other tragedies such as floods.
The idea is predicated on the basis that homeowners and businesses could purchase a hedge against loses should they fear an impending disaster. Although, Weather Risk Solutions stresses that hurricane options are not a replacement for insurance, but rather a supplement to help cover the large deductibles that Gulf state homeowners often have.
While the products are marketed as protection for homeowners, the market they have created is open to anyone. This means that any weather-savy gambler can make money by correctly betting on the location of hurricane landfall.
Here’s how it works…
Let’s say you thought a hurricane might strike Galveston, Texas. You could purchase an option that such event would happen for $30.50. If a hurricane were in fact to strike, your option would pay out $997.40. If you bought 2o options, you would be paid $19,948.
The trading system is still in its Beta stages, but the site is offering a free play account to anyone who wants to give it a try. In addition, the company is giving $5 to the American Red Cross for each of the first 3,000 people who register. Here is a link to the application.
What do you think? Do you think it’s right for people to bet on Hurricanes?