A San Francisco startup lets smaller businesses hedge their bets against profit-killing weather Weather, either too good or too bad, can do a real number on a business. Pity the ski resort that has no snow or the golf course awash in spring rains. No one can control the weather, of course, but an innovative startup using Web-based technology offers a way for smaller business to "insure" themselves against the ra A San Francisco startup lets smaller businesses hedge their bets against profit-killing weather You’ll notice I put quotes around insure. That’s because WeatherBill doesn’t sell insurance, although its product has some similarities. The San Francisco startup claims to be the first to sell a financial instrument known as a weather derivative to smaller companies. The derivative is used to hedge against the risk that weather will damage business. Here’s a recent example: The Flagstaff Nordic Center was planning to open its season with a fall festival in early October. The center, which has acres of trails for cross-country skiing and snowshoeing, generally needs lots of snow, but the festival wouldn’t succeed without clear weather, says Wendell Johnson, who founded the resort.Johnson calculated that bad weather would cost him $5,000 to $10,000 (not counting lost business) so he went to WeatherBill’s Web site, picked the amount of rain that would force cancellations, and quickly found that he could buy a derivative for $750. As it happens, the weather was good. But if the festival had been rained out, Johnson would have been reimbursed. Unlike an insurance policy, the weather derivative pays a flat rate and there’s no need to prove damages or deal with a claims adjuster. The only proof needed is data from the nearest weather station, Flagstaff airport, about 25 miles away, which is collected automatically by WeatherBill computers. Weather derivatives are not new. Indeed, they are a $60 billion industry that until now has been the exclusive province of giant energy firms worried about unexpected fluctuations in temperature, says WeatherBill CEO David Friedberg.But by using a Web-based front end on top of a cluster of open source servers, WeatherBill has reduced its own costs by several orders of magnitude. The system collects and processes data from a variety of sources, including feeds from the U.S. Weather Service, writes “odds” on the weather a customer wants to hedge, and then sends a check to the customer. A much larger company, Nephila Capital, stands behind WeatherBill, and pays all customer claims. Companies like Nephila are known as reinsurers and act to spread risk beyond the primary issuer of an insurance policy or derivative. Although it sounds like you could have a good time betting on the weather, Freiberg, a former Google exec, says that can’t happen. WeatherBill demands proof that customers are a business with a net worth of at least $1 million. Even so, it’s rather fun to go to the Web site and see the odds on a particular weather event. For example, if I wanted a policy against heavy snow, say three inches or more in Boston on Christmas Day, it would cost me $400 for $10,000 of coverage.Launched in January of 2007, WeatherBill was initially funded by angel investors; earlier this month it raised $12.5 million in venture money from a number of sources including Enterprise Associates and Index Ventures. By the way, the always-interesting Michael Lewis recently wrote a lengthy article on weather derivatives for the New York Times magazine. Freiberg was rather irked that WeatherBill wasn’t mentioned, but it’s still a good piece. I welcome your comments, tips and suggestions. Reach me at bill.snyder@sbcglobal.net. Technology Industry