Method and system for insuring users of electronic trading systems or exchanges and traditional established commodity exchanges against weather-related risks and hazards

• US 20040103003A1
• Filed: 11/22/2002
• Published: 05/27/2004
• Est. Priority Date: 11/22/2002
• Status: Abandoned Application

• Current Assignee: E-Comm Connect LLC
• Original Assignee: E-Comm Connect LLC
• Inventors: Mayers, Mark M., Fromer, David M.
• Application Number:
  US10/303,127
• Publication Number:
  US 20040103003A1
• Time in Patent Office: Days
• US Class Current: 705/4
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

Method and system for bundling a weather-related risk management product to the trading of commodities, such as agriculture, food, electricity, natural gas, oil and other products being traded through independent electronic commerce exchanges including business-to-consumer, business-to-business and traditional established commodity exchanges. A weather-related insurance product is created for a commodity which will specify the weather-related risk premium and compensation to be paid if certain defined events occur. The exchange offers the insurance product to its members, and for those that purchase the insurance product, a premium is added to the cost for each transaction in which the member is a party. By bundling a weather-related insurance product together with each trade or transaction, the weather-related risk premium is incorporated as an added transaction cost at the time the trade is confirmed. The amount of premium paid by each trading party may be accumulated and recorded as “weather credits”. Pursuant to the terms and conditions of the insurance product which vary depending upon the commodity and the risks being covered, different amounts of weather credits are required in order to obtain compensation for a weather-related incident. As such, insurance for weather-related risk is made easily and readily available to all buyers and sellers regardless of the platform used for trading.

Claims

1. A method for bundling a weather-related insurance product in conjunction with trading a commodity through an electronic exchange, comprising:

creating a weather-related insurance product for the commodity, the insurance product providing a predetermined coverage, requiring payment of premium and providing for compensation for a weather-related incident;

posting offers by counter-parties to buy and/or sell the commodity on the exchange;

receiving an acceptance from a counter-party indicating an intention to create an agreement to trade the commodity;

when an acceptance is received, notifying the counter-parties (buyer and seller) that an agreement to trade the commodity has been accepted; and

including the insurance product in the agreement such that weather-related insurance is integrated into the trading transaction, subject to the terms and conditions set forth in the insurance product.

2. The method of claim 1, wherein including the insurance product in the agreement comprises requesting acceptance of the insurance product by at least one of the counter-parties, and then including the insurance product in the agreement for the at least one accepting counter-party.

3. The method of claim 1, wherein the insurance product is automatically included in the agreement for both counter-parties when the transaction is made.

4. The method of claim 1, further comprising enabling each counter-party to commit to automatically accept the insurance product for all subsequent agreements involving the counter-party within a specified period of time.

5. The method of claim 1, further comprising defining the terms and conditions of the insurance product to allot weather credits to counter-parties upon payment of the premium, wherein each weather credit corresponds to an amount of paid premium.

6. The method of claim 5, further comprising defining the terms and conditions of the insurance product to specify the number of weather credits required to obtain compensation pursuant to the insurance product.

7. The method of claim 5, further comprising accumulating the weather credits for the counter-parties in respective, separate accounts.

8. The method of claim 7, further comprising defining the terms and conditions of the insurance product to compensate a counter-party for a weather-related incident after a predetermined number of weather credits have been accumulated and to reduce the number of weather credits in the respective account by a number of weather credits corresponding to the dollar value of the claim paid.

9. The method of claim 5, further comprising defining the terms and conditions of the insurance product to set a limit on the number of weather credits that can be used for each weather-related incident.

10. The method of claim 1, further comprising defining the terms and conditions of the insurance product to enable compensation for a claim irrespective of a direct loss.

11. The method of claim 1, further comprising defining the terms and conditions of the insurance product to require a direct loss in order to obtain compensation.

12. The method of claim 1, further comprising defining the terms and conditions of the insurance product to specify events that qualify as a weather-related incident.

13. The method of claim 1, further comprising defining the terms and conditions of the insurance product to specify the amount of compensation to be paid for a weather-related incident based on a multiple of the premium paid.

14. The method of claim 1, wherein creating the insurance product comprises analyzing a weather-related risk for the commodity and determining the premium based on the associated weather-related risks accepted.

15. The method of claim 14, wherein the weather-related risk is analyzed based on the geographical area in which the risk exists.

16. The method of claim 14, wherein the weather-related risk is temperature above or below a threshold temperature.

17. The method of claim 14, wherein the weather-related risk is rainfall at least one of above a threshold or below a threshold.

18. The method of claim 14, wherein the weather-related risk for the commodity is analyzed and the premium for the commodity is determined prior to the acceptance or confirmation of a trade transaction.

19. The method of claim 1, further comprising assigning a standard unit of exchange for the commodity, the premium being determined per standard unit of exchange for the commodity.

20. The method of claim 1, further comprising connecting the counter-parties to a server over a communication network, the counter-parties being notified of the offers to buy and sell by transmitting the offers to buy and sell from the server over the communication network, the acceptances from the counter-parties being received at the server over the communication network;

and when acceptances are received by the server, the counter-parties being notified that agreements to trade the commodity have been created via the communication network.

21. A method for bundling a weather-related insurance product in conjunction with trading a commodity through an electronic commerce exchange, comprising:

creating a weather-related insurance product for the commodity, the product providing for a predetermined coverage, requiring payment of premium and providing compensation for a weather-related incident;

forming trade agreements between counter-parties (buyer and seller) of the commodity on the exchange using a server and remote terminals connected over a communication network to the server; and

including the weather-related insurance product in the trade agreements and thereby providing the coverage to the buyers and sellers.

22. The method of claim 21, further comprising defining the terms and conditions of the insurance product to allot weather credits to the counter-parties upon payment of the premium, each weather credit corresponding to an amount of paid premium.

23. The method of claim 22, further comprising defining the terms and conditions of the insurance product to specify the number of weather credits required to obtain compensation pursuant to the insurance product.

24. The method of claim 22, further comprising accumulating the weather credits of each counter-party in respective, separate accounts.

25. The method of claim 24, further comprising defining the terms and conditions of the insurance product to enable compensation to a counter-party for a weather-related incident after a predetermined number of weather credits have been accumulated by the counter-party and to reduce the number of weather credits in the payee'"'"'s account by a number of weather credits corresponding to the compensation paid for the incident.

26. The method of claim 21, further comprising defining the terms and conditions of the insurance product to enable compensation for a claim irrespective of a direct loss.

27. The method of claim 21, further comprising defining the terms and conditions of the insurance product to require a loss to obtain compensation.

28. The method of claim 21, further comprising defining the terms and conditions of the insurance product to specify events that qualify as a weather-related incident.

29. The method of claim 21, further comprising defining the terms and conditions of the insurance product to specify the compensation to be paid for a weather-related incident based on premium paid.

30. The method of claim 21, further comprising assigning a standard unit of exchange for the commodity, the premium being determined per standard unit of exchange for the commodity.

31. The method of claim 21, further comprising arranging for the payment of the premium over the communication network.

32. The method of claim 21, wherein the step of including the insurance product in the agreement comprises requesting acceptance of the insurance product by at least one of the counter-parties, and then including the insurance product in the agreement for the at least one accepting counter-party.

33. The method of claim 21, wherein the insurance product is automatically included in the agreement for both counter-parties when the transaction is made.

34. The method of claim 21, further comprising enabling each counter-party to commit to automatically accept the insurance product for all subsequent agreements involving the counter-party within a specified period of time.

36. The method of claim 34, further comprising determining the compensation for each buyer based on the amount of commodity bought by the buyer.

37. The method of claim 36, wherein determining the compensation for each buyer comprises summing the amount of the commodity bought by the buyer to determine the amount of premium paid by the buyer, and determining the compensation to the buyer based on the premium paid.

38. The method of claim 37, further comprising enabling compensation to each buyer seller only after the amount of premium paid by the buyer is equal to or exceeds a minimum amount of premium.

39. The method of claim 34, further comprising conditioning compensation to each buyer on the purchase of a minimum amount of the commodity.

40. The method of claim 34, further comprising defining the terms and conditions of the insurance product to allot weather credits to each buyer, each weather credit corresponding to an amount of paid premium.

41. The method of claim 40, further comprising defining the terms and conditions of the insurance product to specify the number of weather credits required to obtain compensation pursuant to the insurance product.

42. The method of claim 40, further comprising accumulating the weather credits of each buyer in respective, separate accounts upon the buyer making multiple purchases of the commodity.

43. The method of claim 42, further comprising defining the terms and conditions of the insurance product to enable compensation to each buyer for a weather-related incident after a predetermined number of weather credits have been accumulated by the buyer and reduce the number of weather credits in the compensated buyer'"'"'s account by a number of weather credits corresponding to the compensation paid for the incident.

35. A method for bundling a weather-related insurance product in conjunction with sale of a commodity, comprising:

creating a weather-related insurance product for the commodity, the insurance product providing for a predetermined coverage, requiring payment of premium and providing for compensation for a weather-related incident;

including the premium in the price of the commodity; and

selling the commodity;

whereby a buyer of the commodity is entitled to compensation for a weather-related incident pursuant to the product.

44. A system for trading a commodity through an electronic commerce exchange, comprising:

a server for insuring trades of the commodity on an electronic commerce exchange, said server comprising a processor and a memory component including a trading program;

links for coupling said server to remote terminals accessible by buyers and sellers of the commodity over a communication network; and

a risk assessment program for creating an insurance product based on weather-related risk of the trades on the electronic commerce exchange, the insurance product providing for a predetermined coverage and including a premium, covered incidents and compensation payable for the covered incidents, said risk assessment program being coupled to said processor such that said processor notifies the trade participants of the terms and conditions of the insurance product, the insurance product being issued upon payment of the premium.

45. The system of claim 44, wherein said risk assessment program is resident on said memory component.

46. The system of claim 44, wherein said risk assessment program is resident on a server of an insurance company, said insurance company server being coupled to said trade-insuring server over the communication network.

47. The system of claim 44, wherein said processor is arranged to total the amount of premium paid in conjunction with trades by the buyers and sellers in respective, separate accounts and upon occurrence of a covered incident, authorize compensation only when the amount of premium paid is equal to or greater than a threshold amount of premium.

48. The system of claim 44, wherein said processor is arranged to assign weather credits to the buyers and sellers as a function of the premium paid in conjunction with trades by the buyers and sellers, accumulate the weather credits in respective, separate accounts for the buyers and sellers, and upon occurrence of a covered incident, authorize compensation only when the accumulated total of weather credits is equal to or greater than a threshold amount of weather credits.