Anyone who has been tempted by a warming cup of soup on a winter’s day or a cold beer on a sunny one understands that one of the most powerful influences on human behaviour is the temperature. Indeed, a recent UK documentary Human Swarm, explained how the hypothalamus gland located in the centre of the brain acts as a thermostat, sending the necessary instructions to our bodies to ensure that its core temperature is maintained at 37°C. Such instructions might include eating more food or constricting the blood vessels in our bodies’ extremities when it’s cold.
As humans, we are not always conscious of the changes to our mood and behaviour that result from the slightest variation in temperature, but it is clear that people are driven by temperature and on a mass scale.
Fluctuations of Extremes
The UK is emerging from the coldest spring in more than 50 years with the average temperature for the period March 1 to May 28 reaching a mere 6°C. However, amidst this grim spring, the two May bank holidays were unusually sunny with a combined 61 hours of sunshine recorded over the six days in Southern England and temperatures exceeding 20°C in many places.
These dramatic changes in weather and temperature can have huge implications for businesses, with fluctuations impacting company profits with increasing regularity. Take the leisure and hospitality sector, for example. Bars, pubs, restaurants, theme parks and golf courses will all have welcomed the increased crowds that the fine bank holiday weather brought, particularly amidst the cold, wet conditions that preceded them.
Predicting the Weather
Many businesses can, and do, use short-term weather forecasts to plan for the likely impact of near-term changes in the weather on customer demand. However, the fact remains that it is incredibly difficult to accurately forecast the weather on a long, or even medium-term, basis. Whilst short periods of fine weather may be good for the leisure industry, if these periods are anomalies in a season of generally poor weather as we have witnessed this spring in the UK, the overall impact on a company’s financial results can be negative.
I have explained in previous posts that index based weather solutions provide a mechanism by which businesses can seek to protect themselves against the financial impact of adverse weather. These solutions respond to movements in a bespoke weather index designed to reflect the specific relationship that the particular business has with the weather. They can be designed around temperature, rainfall, snow, wind, sunshine hours or combinations of perils offering the opportunity for businesses to tailor the coverage to their specific needs. Businesses may not be able to control the weather, but they can use index based weather solutions to seek to mitigate the financial impact of adverse weather on their results.