March 08, 2022
Climate change is driving winter storms to be more extreme and less predictable. Risks faced by property managers who budget for snow removal have shifted. High snowfall skyrockets costs and makes variable-priced snow removal contracts a risky bet. On the flip side, fixed-price contracts can lead to overspending in low snowfall winters.
Demex’s snow solutions for property managers form comprehensive budget planning. Our platform tracks the entire process from proposal to plow to protection. We custom-fit winter snowfall insurance products that consider hyper-local snowfall patterns across your portfolio as well as the unique cost profile at each of your properties. Our customers save 10-40% on snow removal costs when compared to servicer-provided fixed seasonal pricing.
Businesses that are affected by extreme precipitation (flood/drought and extreme snowfall) should include this assessment in their planning cycle and risk management approaches. Short-term operations can be adjusted to optimize revenue and minimize costs linked to extreme temperature. Longer-term capital investments can optimize businesses for longevity. Risk management is a critical part of planning for these business cycles for large and small companies alike. Climate Report is a Wakeup Call for Business Leaders
A New Normal for Winter Weather
Winter weather patterns are in flux across North America, which makes budgeting for snow removal far more complex than it used to be for both clients and snow removal contractors.
In some regions of the U.S., like in parts of the Midwest and Northeast, winter snowfall is increasing.
This map shows areas in the U.S. where snowfall trends have been increasing in recent years.
In the Northeast United States, extreme winter storms have been more frequent in recent years. Between 2008 to 2018 there were three to four times more big winter storms than in the previous five decades. Twice as many extreme snowstorms hit the eastern two-thirds of the United States in the second half of the 20th century than in the first.
In many places, snowfall has become more volatile. Big storms and snow droughts are becoming more common. Some of the most variable locations in the country are big cities and state capitols like Little Rock, AR; Tulsa, OK; Minneapolis, MN; and Detroit, MI. In Minneapolis, MN, one of the highest snowfall winters and the absolute lowest both occurred back-to-back around 2010.
Shifting Risks for Property and Facility Managers and Snow Removal Contractors
This unpredictability in snowfall creates a significant impact for property managers. Big storms in many winters lead you to blow your budget. Alternatively, you can dramatically overspend in a year with very few storms. Demex offers a comprehensive solution for understanding and addressing these changing dynamics.
Typical fixed priced contracting is expensive: seasonal fixed price contracts exceed per event pricing in most years. Seasonal fixed contracts typically reflect the costs of a 1-in-10 extreme winter, as vendors typically set the fixed price by weighting higher snowfall totals in recent winters. Contractors are then dis-incentivized to service low snow events for fear of future major storms.
Variable priced vendor contracts are often cheaper than fixed-price contracts. Per event pricing accumulates charges as winter unfolds, with continual payment to contractors in extreme winters. Contractors are then incentivized to service property in every storm, as payments align with services rendered. However, per event pricing creates budget variance.
For snow removal contractors and snow-dependent businesses, variability in winter snowfall creates income instability. In lower than expected snowfall years, revenues fall below typical levels, while payments for business operations expenses, including machines like snowplows, are consistently due.
Risk management eliminates budget guess work. A well-designed risk transfer program removes end of winter budget surprises.
Demex currently offers two snowfall insurance products to manage these risks:
- Demex Revenue Protection Insurance is created for snow removal contractors and snow-dependent businesses. Claims are triggered when snowfall revenue is low.
- Demex Cost Control Insurance serves property owners, facility managers, and municipalities. Claims are triggered when snowfall expenses are high.
For property owners, facility managers, and municipalities, Demex offers a full end-to-end solution for purchasing, managing, auditing, and paying your snow removal contractors. Our Snow Center facilitates climate resilience at every step of the process, from Proposal to Plow to Protection:
We provide detailed analysis at each location in your portfolio and link your unique expenses to snowfall variability and climate trends.
We provide tools for monitoring your budget at each location from storm to storm throughout the winter.
We provide options for insurance and hedges that cap your costs for the upcoming winter season, thereby reducing budget volatility and uncertainty.
Contractor invoices are uploaded directly into the Snow Center by customers and vendors for each location, then compared against the modeled expenses and observed snowfall. The Snow Center also integrates with existing facility management technologies to show if and when vendors were on site.
Risk Management Saves Money
Active risk management creates savings. On average, active management for property and facility managers saves 14% per year over fixed price contracts. Over multiple winters, active risk management creates significant savings in operational budgets.
With active risk management, the minimum savings is 8% in any given year, regardless of snowfall expenses. In a typical winter, the savings are between 10% and 15% of the fixed price contract. In extremely low snow years, the portfolio savings can exceed 30% versus the fixed price contract.