Weather Derivatives Are Booming in an Unpredictable Climate

As the world’s climate becomes increasingly volatile, businesses that depend on predictable weather are turning to financial products that compensate them when there’s a heat wave, a drought or an unusually persistent bout of rain.

Unlike better-known catastrophe bonds, which help to shield insurers against rare natural disasters, so-called weather derivatives offer protection from less severe but more common meteorological events. These contracts help companies to manage risks that may go barely noticed, such as a warmer winter or a rainier summer.