Arises out of the normal use of property and is excluded from property insurances although would not, in any event, be embraced by terms such as ‘accidental damage. However, ‘new for old’ policies disregard wear and tear in claims settlements. See REINSTATEMENT POLICIES.
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The amount deducted from a claims payment in recognition of the depreciation of the property insured through usage of it over time. Where cover is provided on a ‘new for old basis’ ie where the insurer agrees to replace an old item with a similar new one, no such deduction is made.
Insurance Encyclopedia
Wear and tear exclusion
A common heading for an all risks exclusion relating to a group of events that do not represent risk at all. Property will become worn out and torn it will rust, settle, become rotted, infested, marred, or scratched. It is easy to distinguish however between the marring that occurs over time (excluded) and marring that occurs when a concrete block is dropped onto a fine wooden table.
Wear and tear exclusion (Property Insurance)
An exclusion that makes losses due to normal wear and tear ineligible.
Weather Based, Pilot for Crop Insurance
Pilot Weather based Crop Insurance Scheme (WBCIS) : Weather Based Crop Insurance Scheme (WBCIS) covers the insured farmers against the likelihood of loss on account of anticipated crop loss resulting from incidence of adverse conditions of weather parameters like rainfall, temperature, frost, humidity etc. WBCIS is built upon the fact that weather conditions affect crop production even when a cultivator has taken all the care to ensure good harvest. Historical correlation studies of crop yield with weather parameters helps in developing weather thresholds (triggers) beyond which crop starts getting affected adversely. Payout structures are developed to compensate cultivators to the extent of losses deemed to have been suffered by them using the weather triggers. In other words, WBCIS uses weather parameters as ‘proxy’ for crop yield in compensating the cultivators for deemed crop losses.
Weather derivative
A security, swap or option whose value is directly related to weather events over a specified time in a specified location. Weather derivatives pay cash flows depending on occurrences such as deviations from average temperature, precipitation levels, etc. Companies use weather derivatives as a hedge against weather conditions damaging to their trade, e.g. pavement café suffers during a cool summer and may acquire heating degree days. See COOLING DEGREE DAYS; WEATHER SWAPS; WEATHER INDICES; ENERGY DEGREE DAYS; GROWING DEGREES; PRECIPITATION.
Weather indices
The underlying index upon which weather derivatives are based. The two main temperature indices are heating degree days and cooling degree days. Other weather variables: maximum or minimum temperature; critical temperature events (temperature passing a defined value); rain and snowfall; windspeed.
Weather insurance
Insurance for the promoter of an outside event, e.g. outdoor play, that depends on specific weather conditions. The policy pays if, for example, a preset rainfall level is exceeded leading to cancellation or reduced attendance. See ABANDONMENT OF EVENT; WEATHER RISK; PLUVIUS POLICY.
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The basic purpose of “weather insurance” is to give payouts by estimating the percentage deviation in output due to adverse deviations iin weather conditions. In weather insurance the contingent claims are determined by an objective weather parameter (such as rainfall, temperature, humidity) that is highly correlated with the type and class of production unit. Particularly, related to crop production.
Weather insurance coverage
A type of business interruption insurance that compensates for financial losses caused by adverse weather conditions.
Weather risk
1. Adverse effect on corporate costs or revenue of the non-catastrophic effect of weather that deviates from normal conditions; e.g. poor heating energy sales due to mild winter. Weather-sensitive businesses use weather derivatives. 2. Risk of injury/damage by high severity/low probability events such as severe windstorm. Insurance is the usual response. 3. Adverse effect on insurers’ underwriting results following widespread losses through hurricane, tornado, flood, etc. Reinsurance is the traditional response, but catastrophe bonds or swaps, and other alternative risk transfer products, are also used. See also WEATHER INSURANCE; PLUVIUS INSURANCE.
Weather risk management
The weather risk is managed by hedging against poor sales volume and/or increased costs caused by unwelcome weather conditions. Weather derivatives supplement existing risk management tools. The main weather risk management products are structured as caps (see CALL OPTIONS), floors (see PUT OPTIONS), swaps and collars.