Farecast, the service that seeks to predict the direction of airfares for the routes and dates you specify, is offering to sell you insurance for those predictions.

Ironically, this comes on the heels of the Seattle Times’ review of Farecast today. The newspaper found that the service was accurate in predicting the direction of fares in 61% of the searches queried. That’s below the firm’s target of 75%, but above my earlier (limited) assessment of around 50% accuracy.

So how does the new insurance/guarantee work? Much like buying a stock and purchasing a put option to protect you in case of a drop in the price, Farecast will sell you a “policy” when they predict the price will drop or hold steady. (If they predict the price will rise, then presumably you’ll be buying the ticket anyway. VentureBeat explains:

Let’s say you’re planning a trip, say to Kansas on Dec 5, and Farecast shows a low price of $210 and further, predicts prices are going to drop over the next few days. Now, rather than waiting, you can buy something called a “Fare Guard,” which lets you lock into any subsequent price drop automatically. Initially, the product will come at a promotional price of $1, but later might be priced around $10. Once you buy the Fare Guard, you have seven days to buy the actual ticket. If the price does drop, you get your savings. If it goes up, unexpectedly, you can buy the ticket, and Farecast will refund you the difference — so you win either way.

It’s an interesting idea, and the insurance is attractively priced (especially at the $1 intro rate). But remember, the contract covers THE LOWEST fare on the day you’re buying. Not the preferred time, airline, or connection. (Sounds like bidding for a ticket on Priceline!) There is thus a bit more variation and risk than first seems obvious.

The feature is still in beta, but readers who want to try it can participate in the test by clicking here and using one of the following beta-preview password combinations:

username: venturebeat
password: fareguardtest

username: johncook
password: fareguardtest

If you try it, please report back with your experience!

Maybe this will be the start of a market in a whole range of airfare derivatives. I’d like to short 20 Thanksgiving tickets to Los Angeles, sell puts on the July Paris contracts, and put a straddle on my December Newark itinerary.

Related:
- Farecast expands price predictions to over 50 cities
- Farecast beta goes public, just in time for a reader review
- So how accurate is Farecast?