A stormy investment?

KHOU reports today on something that isn't exactly new, but is certainly new to us: In March, the Chicago Mercantile Exchange began offering contracts on hurricane futures — meaning individuals and companies can now bet on the probability of where and when a hurricane will hit. And it's not necessarily as bizarre as it sounds (assuming, of course, you have a pretty good idea of a hurricane's path).

The CME started offering the hurricane futures as a way to spread the risk associated with the storms around a little. When hurricanes Katrina and Rita hit in 2005, they caused around $79 billion in damage — and insurance companies had trouble covering all that, meaning some businesses had to raise their prices and homeowners were left with higher premiums. Futures, if played right, could help offset some companies' and homeowners' losses and could even help insurance companies cover the cost of their policies. The futures are based on the Carvill Hurricane Index, a new scale developed for the CME that's more specific than the traditional Saffir-Simpson scale. Each point on the Carvill index is worth $1,000 in the futures market, so if you had made a futures contract on Katrina, let's say — which was a 19 on the Carvill scale — you'd be paid $19,000 when the hurricane hit. (There's more information on how the Carvill scale is measured here.)

The futures market is an interesting idea for companies that are prone to be affected by hurricanes — offshore drilling outfits come to mind immediately, but there are lots of others, too. And homeowners with good weather-prediction skills (and the help of a home meteorology station) could also hedge their bets by buying the contracts, though KHOU meteorologist Mario Gomez said that's kind of an iffy business: "Forecasting anything beyond four to seven days is a pretty risky proposition," he said. For Linda Griffin, a hurricane survivor, the odds are improbable: "Oh my gosh," she said. "That's why I don't go to Las Vegas."