Cost Containment insurance is designed to limit additional costs incurred from unseasonal weather conditions. Typical scenarios include increased snow removal expenses in an unexpectedly harsh winter, or added air conditioning expenditure over a hot, prolonged summer.
- ‣ Utility companies
- ‣ Airlines
- ‣ Property managers
- ‣ Hospitals
- ‣ Private schools
- ‣ Local authorities
Berghampshire Town Council has an annual gritting budget of GBP 500,000 based on average snowfall between November and March of 25cm. In the event of an unexpected and harsh winter, it will be faced with costs in excess of what they can afford and other areas of public services will suffer as a result.
Berghampshire Town Council buys weather insurance to safeguard its budget. The policy will pay a stated value of GBP 20,000 per centimetre of snow to fall in excess of the budgeted 25cm in Berghampshire between November and March.
The actual snowfall exceeds the trigger e.g. if 28cm of snow falls in Berghampshire between November and March the pay-out is GBP 60,000 or if 29cm of snow falls in Berghampshire between November and March the pay-out is GBP 80,000.
The actual snowfall does not exceed the trigger by a centimetre or more e.g. 25.5cm of snow falls in Berghampshire between November and March.
Woods Property Ltd manages 750 luxury flats in the Bahamas. The tenants pay an annual service charge out of which the annual air conditioning costs are met. Woods Property Ltd uses annual monthly weather averages to budget for this and to adapt the service charges accordingly. In the event of prolonged summer, the company will face expenditure which exceeds their initial forecast. The companys know that for every degree above the monthly average, the additional monthly cost will be USD 10.00 per flat. As it has budgeted prudently, they can afford the occasional heatwave but any monthly average over 3°C higher than the expected will cause financial difficulty.
Woods Property Ltd buys a Weatherproof Policy which will pay USD 7,500 per degree in excess of 3°C above the monthly average for Nassau.
The actual monthly average exceeds historical average by more 3°C e.g. if historic July average is 25°C in Nassau the policy would pay USD 7,500.
The actual temperature doesn’t average over the excess of the 3°C trigger e.g. with the stated average temperature for July being 25°C in Nassau and the actual temperature averages under 28°C.
Digger Construction Ltd has 12 months for the construction of a new motorway connecting two towns in Melbourne. It has factored in 15 ‘wet’ days into the contract where no construction work can be undertaken.
Weatherproof pays the Client for the contractual penalty for a delay in the construction per ‘wet’ day (defined as any day where 5cm of rain or more occurs between 08:00 and 17:00) in excess of 15 wet days.
The peril and the excess are triggered e.g. there are 16 days over the 12 month contract in which 5cm or more of rain falls between 08:00 and 17:00 the policy pays for one day’s contractual penalty or there are 32 days over the 12 month contract in which 5cm or more of rain falls. The policy pays for 17 days’ contractual penalties.
There are 15 days or fewer over the 12 month contract in which 5cm or more of rain falls between 08:00 and 17:00.