In addition to Stanford professor Eric Zitzewitz’s comment (Thoughts on Weather Bill), here are some reader comments published at Tech Crunch:

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JR: This is really going to take a lot to convince small businesses. They’re busy running their companies, not gambling. Freelance devs, domainers, or day traders seem to be a better fit.

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Drama 2.0: Very cool. I agree with JR that it would be tough to sell small businesses on this, however it appears that they’re targeting accredited investors. If you buy into the predictions that global warming is going to cause major climate change (namely instability), markets like this may become increasingly important and a great way to make or lose large sums of money very quickly. Of course, you don’t need to be a large hedge fund or energy company to make indirect bets on the weather (a lot of commodities track nicely with specific weather forecasts) but having a way to do it directly could potentially create some interesting opportunities.

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Steve E: Weather derivatives and options have been viable ways of hedging against adverse weather for many years. If you’re interested in this kind of thing try ‘catastrophe bonds’ in Google for another niche risk transfer market.

I worked in this arena for many years and actually helped launch an online weather derivatives trading platform many years ago (sadly too early for the market to adopt at the time). This is more traditional weather cover, but it’s nice to see the interest is still there for electronic platforms to serve these markets. See the CME (Chicago Mercantile Exchange) for someone who is active as an exchange for these products.

In answer to Soso; the weather data comes from the main meteorological organizations, so is trusted and available easily (sometimes freely). You can hedge rainfall, temperature (degree days), snow fall etc etc. The catastrophe bonds I mention above hedge against earthquake, windstorm in a similar manner. In the past there have been deals struck over hail, tornado and more exotic weather occurences as well.

[...] Oh, and it’s not a gamble really. It pays out when you get hit by adverse conditions and doesn’t pay out if you don’t. It’s straight hedging/insurance…

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Teddy Schroeder: I love the idea, and it’s no wonder that hedge funds are acting like the re-insurers here. The concept is similar to a simple CDS (credit default swap), which is a basic derivative. With CDS, a party doesn’t want to have the risk of bankruptcy when they buy a bond; so, they essentially buy something like this policy to get limit risk just like a small business owner buys a policy here.

If I were a small business owner that does have a business affected by the weather, I would buy in a heartbeat. My only question would be that who holds the risk [in] the process because someone will. I’m sure the hedge funds will be aggregating the policies “bought” from the site and then offering them out to the greater derivatives market. Maybe even the CME as Steve E. says above in the catastrophe bond market.

Excellent idea, and probably just one of the many opportunities to simplify derivative-like products to sell to for small business owners….