ALTHOUGH LENDERS MOST OFTEN REQUIRE builders to have risk insurance to protect against home damage during construction, many builders say such policies aren't worth it because of the high premiums and costly deductibles.

But Brian O'Hearne, the president of GuaranteedWeather, says that builders' disenchantment with the insurance industry has blinded them to alternative weather risk management products. Weather derivatives, for example, could help builders protect themselves against the financial losses and delivery delays caused by severe wind and rain during hurricane season.

“Pulte-types could have the critical mass to explore the cost effectiveness [of purchasing a weather derivative],” says O'Hearne.

Weather derivatives often are used in other parts of the construction industry as well as in the utilities, agriculture, and manufacturing sectors. The cost of the product would be determined by how far outside normal weather patterns the builder wanted to set rainfall and wind speed parameters for payout.

“If you're wanting protection for a category one [hurricane], it'll probably be pretty expensive. But if you're wanting it for a category five, it'll be cheaper,” O'Hearne explains.

A weather derivative gets a leg up on an insurance policy in that it focuses on economical loss rather than just property damage, and it cuts out the claims adjustor who evaluates the damage. “There's no proof of loss required. As long as weather parameters are met, there will be a payout,” O'Hearne says.

A.M. Best Co., an insurance rating and information agency, estimates that this alternative market comprises nearly 50 percent of the entire U.S. commercial insurance market.