Catastrophic Thailand Floods Could Lead to Water Trading Business

After its catastrophic floods, Thailand is considering trading water derivatives to give investors a way to hedge against disasters, Bloomberg reports.

The country, which is still reeling from the worst floods in almost 70 years, is analyzing the idea of introducing contracts whose value would be linked to rainfall, or the level of water in the nation’s major dams.

Thailand, the second largest economy in Southeast Asia, has seen 1500 industrial facilities swamped and almost 700 people killed by the floods, which are adding up to $41.6 billion of damage to the economy. 

Intel, Honda and Toyota all cut their revenue estimates because of the flood’s interference with production.

"Flooding has become more frequent in Thailand, with much greater economic impact, and the new security would offer investors, insurers and manufacturers an instrument to help alleviate financial losses in future catastrophes," Vorapol Socatiyanurak, Secretary General of Thailand’s SEC told Bloomberg.

The contracts would also help protect farmers from the impact of floods and drought, he said.

The value of global weather-related derivatives grew 20% between 2010-2011 to $11.8 billion, according to US-based Weather Risk Management Association. Demand is growing for contracts related to rainfall, snow, hurricanes and wind from industries such as agriculture, construction and transport, they say.

Most weather contracts trade on the Chicago Mercantile Exchange. Snow contracts, for example, are based on the exchange’s Snowfall Index, a measure of average monthly snowfall in certain U.S. cities. Traders "determine the amount of snowfall would be detrimental to their businesses and take futures or options positions based on that."

In March, WeatherBill, a technology company that sells weather insurance, closed a $42 million round of Series B funding with new investors Khosla Ventures and Google Ventures. 

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