"In this study, weather sensitivity is defined as the relative potential impact of the weather on a country's economy," explains WeatherBill CEO and founder David Friedberg. "To measure the potential growth associated with hedging weather risk, we first quantified the weather sensitivity of several countries around the world."
Weather sensitivity scores are based on daily weather observations spanning as many as thirty years for each country, GDP data by industry sector, and weather elasticity coefficients, which measure the sensitivity of particular sectors to given weather variables. The full study and a summary of the findings can be viewed at www.weatherbill.com/learn/research.
"The United State's economy has a total weather sensitivity of roughly $2.5 trillion, 23 percent of the national economy," says Friedberg. "In contrast, Bolivia has a total weather sensitivity of just over $2 billion. That's 31 percent of the Bolivian economy."
WeatherBill uses the study's results to quantify the potential effect of hedging weather risk; first estimating each country's capital-at-risk (CAR) due to weather variability and then calculating how much the country's economy would grow if the CAR, minus a premium, were reinvested.
"With weather coverage, Brazil's economy is estimated to grow by $16 billion, or 2.3 percent," explains Friedberg. "India's economy could grow by as much as $2 billion, or 2.2 percent. If all of the countries included in the study hedged all of their weather risk, global output would grow by an estimated $258 billion."
