The insurance giant Axa is allowing companies to bet on the weather, with cover that pays out after certain climate events even if no damage is caused.

Axa said its “parametric” insurance will protect low-income farmers in Africa from the effects of extreme weather, but will shortly be extended to some companies in Europe who are also exposed to the elements.

The insurance will be offered in Africa through co-operatives and government schemes, in tandem with the World Bank’s Global Index Insurance Facility, to pay farmers if the temperature rises or falls by an agreed amount, or a certain rainfall threshold is met.

Axa’s initial reinsurance capacity for the scheme is about €50m (£37m). It said many farmers in Sub-Saharan Africa, where 40pc of the economy is tied up in agriculture, cannot afford more traditional forms of insurance to cover losses if crops fail. “Nobody can really predict the weather beyond 15 days. We are not about forecasting the weather; it’s more about dealing in probabilities and data,” said Tanguy Touffut, head of Axa’s corporate solutions.

Weather hedges are already offered by Swiss Re, and the state-backed African Risk Capacity last year created a parametric insurance pool to cover weather-related crises.

Axa has gone further by paying for data feeds from several satellite operators to monitor crop patterns across vast areas, picking up early signs of drought, flooding or crop failure. This data enables the firm to gauge the risk for large numbers of small customers, making the insurance more affordable.

The firm has estimated that between 27pc and 39pc of European countries’ GDP is sensitive to the weather. Unexpected weather patterns have been blamed for profit warnings at many British firms ranging from retailers, whose clothing stock did not match the temperature, to construction companies, which cannot work with cement in freezing conditions.

Last month, the World Economic Forum said the environmental risk of extreme weather events was the second-biggest global risk in terms of likelihood.

Source - http://www.telegraph.co.uk