Weather Risk Mitigation Strategies: A Contemporary Review and Its Application in India

The corporate world has been hedging its risk exposure for decades. One of the most important systematic risk to which majority of the businesses is exposed to is weather. Weather not only affects agricultural output, but also the performance of majority of businesses in varying degree. With growing integration of capital and insurance market worldwide, innovative financial instruments are now available to hedge weather risk exposure successfully. With growing competition, corporates are also concentrating in managing these risks through several traditional as well as innovative risk management techniques including securitisation of both regular weather fluctuation and extreme weather events. The complexity and uniqueness of weather risk call for a detailed analysis of different mitigation strategies that are in use, and their applicability and acceptability in India. Accordingly, this paper focuses on the nature of weather risk and its unique characteristics and at the same time aims to review the use and effectiveness of several risk mitigation techniques.