WRMA rebukes NAIC white paper

The Washington DC-based Weather Risk Management Association (WRMA), has issued a formal response to a draft white paper written by the US National Association of Insurance Commissioners (NAIC). In its report, the NAIC claimed that weather derivatives are disguised insurance products and should therefore be regulated as insurance products (see Energy Risk, February 2004, p14).

In its response to the NAIC draft white paper, the WRMA affirmed its stance that weather derivatives are not insurance products. The WRMA argues that when weather derivatives are fully analysed under insurance law, they cannot be classified as an insurance product. “In fact, two fundamental differences exist between insurance products and weather derivatives. First, there is no need for a proof of loss with weather derivatives; they are simply index-based products. Second, in many cases