Tuesday 19 July 2011

An odd kind of insurance

Sometimes, it's hard to tell the difference between insurance and lotto.

Recall that the general point of insurance is to equalize utility across world-states. So you forgo some utility in the good state of the world by spending money on insurance so that you get some bonus utility in a bad state of the world. Yeah, yeah, this requires that the marginal utility of money not get out of whack across the two world-states; if you don't get many jollies from money in the bad state of the world, this doesn't work. But let's hold that constant for this case.

A Manitoba pool and hot-tub company took out a weather insurance policy such that if temperatures hit more than 34.5 degrees Celsius on 18 July, they'd get a big payout. They then told customers that if the temperature hit 34.5 degrees, they'd get a full refund on any pool, hot tub, or water heater they bought between 1 March and 4 July this year.
In March, the owners of North West Wholesale -- a pool and hot-tub company -- took an insurance policy on the weather. This means, if temperatures reach more than 34.5 C at the Richardson International Airport today, people who bought either a pool, hot tub or water heater from the company between March 1 and July 4 will be eligible for a full rebate.

People may have scoffed at the store owners back in March on the gamble they took, but some 80 customers may be laughing their way to the bank, as Environment Canada is predicting a 35 C high for this afternoon.
But chances may have been better for Tuesday's weather, as Environment Canada predicts temperatures could be much higher in Winnipeg and southern Manitoba.
The projected high is 37 C, which will most likely prompt the weather agency to issue a humidex advisory, said Environment Canada meteorologist Eric Dykes. 
(HT: Mom)

Today's temperature at the airport reached 33 degrees (link valid 18 July but probably just gives current day's temperatures thereafter), so the insurance event wasn't triggered.

But if I were sinking a pile of money in a pool, I'd want the refund if the weather turned out too cold to use the darn thing rather than in the state of the world in which I'm very happy with my purchase. And so it seems more like lotto than insurance for the customers.

Seriously... daytime highs of -20 in winter (night-time lows of -40); +33 in summer. Winnipeg's only really liveable for five weeks around May-June and another five weeks mid-September through mid-October. The other 42, unliveable. And then there are the mosquitoes. On the upside, I don't think they've ever had an earthquake. Floods, often. Tornadoes, rarely. But never an earthquake.


  1. Unrelated, but wow, I've been reading this blog for at least a few months now, and only just realised now that there is more than one blogger, it's not all just Eric! Perhaps you guys could think about putting a header at the top of each post or something? Otherwise I (and I'm sure plenty of others) will attribute opinions stated to the wrong person on occasion.

  2. @Anon: There is a "Posted by" byline at the bottom of each post, which features more prominently in the RSS feed. I'd expect that Seamus has written fewer than 50 of Offsetting's 1337 current published posts (we're now collectively elite!). I really hope that the relative proportions move up closer to levels that would justify sorting out how to change the settings in Blogger to more prominently identify authors.

  3. Oh, and you can basically assume that I agree with Seamus unless I post subsequently saying I disagree. I doubt the reverse of that applies though.