With revenue and new service, WeatherBill predicts bright future in weather insurance

WeatherBill is one of those charmingly oddball companies that comes out of nowhere from time to time in Silicon Valley: It figures out weather patterns and lets you buy insurance against things like too much snow or not enough rainfall. It has started making several million dollars a month, chief executive David Friedberg tells me. And now, it’s trying to get more weather-related businesses to use its weather-calculating technology within their own service.

It’s offering a new service that lets other web sites provide weather insurance to consumers within their own interfaces. WeatherBill has already cut deals with travel companies like Priceline, Thomas Cook, Spanish travel site Atrapalo.com and a few big names the company isn’t revealing yet. These companies either let people do things like get refunds in the event of weather-related flight cancellations, or it lets them buy the refund service beforehand for a fee.

Essentially, WeatherBill is betting that it can do an accurate job of predicting the likelihood of various weather measurements like rainfall and temperature — you can bet on a variety of occurrences that you presumably don’t want to have happen, like more than a foot of snow in a day. So if a travel company buys insurance against a snow day, either the snow day won’t happen and flights will proceed as planned — or the snow day will happen and the travel company will get its insurance money. Nephila Capital, a re-insurance fund that sells capital bonds, weather derivatives and financial instruments to large clients like as insurance companies, is fully backing WeatherBill’s risk, paying the startup in the event its customers cash out on contracts.

WeatherBill, meanwhile, makes money by charging insurance fees to businesses. It uses a complicated algorithm to analyze historical weather trends in data drawn from weather stations. The company has been coming out with other products under the radar in the last year, including a “pro” account so insurance brokers can do things like sell farm insurance. Customers also currently include farmers, ranchers, outdoor sporting venue owners, and other weather-related businesses.

At this point, the company says it is going after the 80 percent of businesses in the world that weather industry group Weather Risk Management Association says are exposed to weather-related risk (although obviously not all of these businesses care about the weather equally). The WMRA report also indicates that weather risk grew 35 percent from 2007 to 2008 (possible WMRA slogan: “Global Warming: A Great Time To Buy Weather Insurance”). Meanwhile, WeatherBill did its own study of 68 countries around the world and “estimates that if all of the countries included in the study hedged all of their weather risk, world output could grow by as much as $258 billion….”

So the San Francisco company has a sunny future? What about competition? The company has viewed insurance companies like AIG as potential competitors, as they have participated in weather-related insurance and might think about building their own technology. Now, though, many of them are fighting for their lives. Another competitor could be the travel agencies themselves — hence the white label service. If WeatherBill can make weather insurance work well enough for these companies, and help them make money, are they going to bother building their own?

The company was founded by former Googlers Friedberg and CTO Siraj Khaliq. It has received a total of $16.5 million from investors including New Enterprise Associates, Index Ventures, Allen & Company, and an impressive list of angel investors.