The end result is that more types of weather contracts are available and more businesses can afford it. When Fisch's golf tournament bought its rain contract in 2007, the cost was just under $1,000, according to Fisch.

Like a typical insurance business model, WeatherBill's strategy is to sell against enough weather eventualities so that the events will essentially balance each other out. Insuring a soybean grower in Iowa against drought might be a money loser, for instance. But if the soybean grower is offset by the state's car washes, which do big business in dry weather, the risk is diversified. Not every customer has a precise counterpart, but a large mix of customers creates a diversified portfolio that, in turn, can bring down prices.

"Our business has all sides of risk—we've got customers wanting rain, drought, heat waves, frost, no frost. We even have people who want hurricanes," says Friedberg.

Since last year's launch, Friedberg says WeatherBill has signed policies with hundreds of customers, hedged hundreds of millions of dollars of risk, and brought in revenue "in the millions." A major deal was struck with Priceline recently, allowing the travel company to insure its users against rain on their vacations for no extra cost. (Priceline will refund the cost of a customer's trip if it rains heavily on more than half the days of their trip.) And the United States Tennis Association has announced it's buying a weather contract to hedge against weather-related losses at this year's U.S. Open, although it hasn't released details.

The Commodities Futures Trading Commission, which regulates weather derivatives, currently limits WeatherBill's customers to accredited investors with a minimum net worth of $1 million as a way of limiting the influence of speculators. But Friedberg hopes to persuade the C.F.T.C. to change that requirement soon and eventually offer policies directly to individuals wishing to protect weddings, travel plans, and other events. As with businesses, premiums would shrink as more customers are integrated into the algorithm and the risk is balanced out.

And Friedberg says that global warming and the volatile weather of the last few years set the right conditions for his business.

"Citrus farmers will call us and say, 'We had four frost events last year. It was nuts. My crop was diminished by 15 to 20 percent,'" Friedberg says. "A lot of ski resorts were shut for much of 2006 and 2007 in the Northeast because it was really warm. They called us the next year. Our customers are definitely aware of climate change and its impact."