NEW YORK, Aug 27 (Reuters): Insuring against weather-related calamity in this era of global warming might seem the work of bean counters and actuaries.
But a study by WeatherBill, an Internet firm offering weather-related risk cover for individuals, as well as companies and governments, says the global economy could expand by up to $258 billion if such contracts were more widely purchased.
It calculated country rankings using three types of weighted data, including weather observations by country, national GDP by sector and weather elasticity, or sector-specific sensitivity to weather.
Among the 68 countries in the study, the US economy ranks nearly last overall using those three measures, but was listed with the highest weather sensitivity in dollar terms.
"The United States' economy has a total weather sensitivity of roughly $2.5 trillion, 23 per cent of the national economy," WeatherBill CEO and founder David Friedberg said. "In contrast, Bolivia has a total weather sensitivity of just over $2 billion. That's 31 per cent of the Bolivian economy."
Customers large or small can create a contract and determine under what weather conditions they would like to be compensated. The contracts are purchased online to protect against weather events such as heavy rains, frost or drought.
In the United States, customers range from professional golf tour organisers to travel operators to small farmers.
Friedberg, who was formerly with Google, told newsmen the company was selling contracts to corn farmers in the Midwest, who suffered heavy flooding earlier this year.
With federal crop insurance coverage set to expire at the end of this month, "these farmers have corn on the ground and are not covered for a frost event for the rest of the season and some might have corn through late October," he said.
As a privately held company, WeatherBill does not issue financial statements, but the CEO said it had "made millions of dollars hedging hundreds of millions of dollars in risk."
In the report, WeatherBill says countries with more extreme variations in temperatures as well as higher extractive activity, such as farming and mining, are the most sensitive.
Brazil, the world's largest coffee and sugar producer, ranked top among the 68 economies assessed for weather-related risks while Pakistan's economy ranks the least sensitive.
The study said Brazil was 30 times more vulnerable to weather risks than Pakistan, which "means that a dollar in Brazil will be thirty times more weather-sensitive than a dollar in Pakistan," WeatherBill said.
The market for weather derivatives, as such contracts are also called, was started by now collapsed energy giant Enron about 10 years ago, Friedberg said, but never broadened much outside of the energy utility sector.
As a result, he said that WeatherBill has so far not seen any direct competition online.
Hedging usually involves taking a position in a futures market that offsets a similar position in the equivalent cash market so that a loss in one is offset by a gain in the other.
Meanwhile, the World Bank said Tuesday more people are living in extreme poverty in developing countries than previously thought as it adjusted the recognised yardstick for measuring global poverty to $1.25 a day from $1.
The poverty-fighting institution said there were 1.4 billion people-a quarter of the developing world-living in extreme poverty on less than $1.25 a day in 2005 in the world's 10 to 20 poorest countries. Last year, the World Bank said there were 1 billion people living under the previous $1 a day poverty mark.
The new estimates are based on updated global price data, and the revision to the poverty line shows the cost of living in the developing world is higher than had been thought. The data is based on 675 household surveys in 116 countries.
While the developing world has more poor people than previously believed, the World Bank's new chief economist, Justin Lin, said the world was still on target to meet a United Nations goal of halving the number of people in poverty by 2015.
However, excluding China from overall calculations, the world fails to meet the U.N. poverty targets, Lin said.
The World Bank data shows that the number of people living below the $1.25 a day poverty line fell over nearly 25 years to 26 per cent in 2005 from 52 per cent in 1981, a decline on average of about 1 per cent a year, he said.
In East Asia, which includes China, the poverty rate fell to 18 per cent in 2005 from almost 80 per cent in 1981, when it was the poorest region. In China, the number of people in poverty fell to 207 million from 835 million in 1981.
In South Asia, the poverty rate fell from 60 per cent to 40 per cent between 1981 and 2005, but that was not enough to bring down the total number of poor in the region, which stood at 600 million in 2005.
