The Weather Risk Management Association (WRMA) released an industry survey of the Indian Weather Market today at its 12th Annual Meeting in Miami, Florida. The survey finds that the Indian weather risk management market could see major growth in several sectors with a total potential notional value of US$2.35-billion (Rs. 105-billion) over the next two to three years.
The survey was conducted for WRMA by Weather Risk Management Services Ltd. India.
The agricultural sector is a major contributor to the Indian GDP. With its high risk exposure to weather, agriculture has the biggest growth potential of all the sectors. Last year, the weather risk market for agriculture grew four-fold due to the huge growth in weather insurance linked to farmers with outstanding loans. The market rose from US$22-million in 2008-2009 (Rs. 1-billion) to US$100-million (Rs. 4.5-billion) in 2009-2010. Subsidized weather insurance accounts for 95% of the market.
The survey estimates that Indian farmers and banks could become a notional US$2.2-billion (Rs. 98-billion) market over the next two to three years. In five years, the weather risk market for agriculture is expected to rise to US$7-billion (Rs. 314-billion) and could reach as high as US$20-billion (Rs. 896-billion). Whether this growth materializes depends on government policies regarding weather derivatives.
There’s great interest in weather risk management tools by the renewable energy sector to offset the impact of weather on wind, solar and hydropower. The renewable energy market’s use of weather risk tools is expected to grow to US$1-billion (Rs. 44.8-billion) over the next five to seven years.
In the travel sector, airlines are often grounded due to winter fog. The survey forecasts that travel sector use of weather risk tools such as fog insurance could grow to US$25-million (Rs. 1.1-billion) over the next five to seven years.
This is interesting specially in the wind energy context as readers may recall that the initial first generation OEM’s of WEG’s promised generation (margin varied from 5 to 10%) when they started business. This was short-lived and now generation is not guaranteed and only machine availability is.