Insuring against a rainy day

London restaurants and pubs are taking out insurance against rainy days, when outdoor tables such as these are empty

LONDON, England (CNN) -- Britain is known for its varied weather: A warm April can be followed by a cold and rainy June.

Unsettled weather can mean unsure turnover for restaurants, bars and pubs -- and can cause delays on construction jobs.

While companies can't control the weather, many are now entering the complex derivatives market to cushion their losses.

Among them is the trendy Rock Garden restaurant in London's Covent Garden.

The restaurant has taken out a kind of insurance umbrella -- a weather derivative -- to guard against cold spring days, when its outdoor seats could be empty.

The restaurant's Philip Matthews explains how it works:

"If a given temperature is not achieved as a maximum for any given day over those months, then we receive a payout for that day. Obviously, that temperature changes between March, April, May and June. For example, in March that temperature is 8½ degrees (Celsius). In June it's 18 degrees."

Stephen Doherty of Speedwell was one of the first people to broker these complicate weather derivatives.

He says the market works because one company pays for protection against cold weather while another against warm weather.

"An energy company will tend to prefer colder winters because all things being equal, they will sell more gas," says Doherty.

"The opposite may be an earthmoving company or construction company that finds it hard to build when it's cold."

The Enron connection

The White Swan Pub along London's River Thames has given up trying to bet against the weather.

The pub can lose up to $15,000 of business in a single day if it's too cold outside to drink.

Rainy days are not only inconvenient to pedestrians, they also can be costly for restaurants and construction companies

But after paying $3,000 for weather insurance last year, the pub's owners say the market needs fine-tuning.

"It's a factor of what is the level of premium you have to pay in order to get that insurance protection," says the pub's Peter Linacre.

"I guess it's still early days, and until there is a large stack of statistical evidence which reinforces what level of risk the re-insurers can expect to take, then we won't know how fine those policies can go."

One company practically created the weather derivatives market in Europe: Enron.

It wanted to hedge against the weather's effect on the use of energy. Enron's demise has not hurt the weather market, though.

The company's energy experts are being scooped up by insurers and banks that don't want to be left out in the cold when it comes to the business of hedging against the weather.