A London-based startup has created a new way to insure homes and businesses against the risk of floods.
Floodflash installs internet-connected sensors on a property's wall to detect impending floods. When water depths exceed a precise threshold, a pre-agreed settlement is instantly paid out.
The coverage is a form of 'parametric' insurance, which makes settlements based on a pre-defined trigger rather than through the traditional assessment of the cost of damages.
This event-based insurance model could finally make catastrophe policies available to the masses.
Flooding currently causes around $50 billion (£38 billion) of worldwide annual losses, but only $9 billion (£7 billion) of this is currently covered by insurance due to the high cost of policies.
This leads tens of thousands of business owners to lose their livelihoods every year.
FloodFlash offers them a more affordable solution. The parametric system allows personalised and competitive flood policies to be written for the highest-risk locations in the world.
"Businesses and homes face huge catastrophic losses every year because they can't afford access to affordable coverage for those low frequency, high severity events," FloodFlash cofounder Adam Rimmer tells Techworld.
"That is floods but also things like earthquakes and wind storms. All those things that happen so rarely that it makes it difficult for insurers to understand the risk and price for it, and that's what makes the premiums so unaffordable to consumers. We really exist to change that."
FloodFlash was founded in London in 2017 by Adam Rimmer and Ian Bartholomew. Both had studied at the University of Cambridge, but didn't meet until years later when they were working at Risk Management Solutions (RMS), a Stanford University spinout that had become the world's largest catastrophe modelling company.
They were there in 2012, when Hurricane Sandy stormed up the east coast of the United States, sucking up water on its way and spitting it out to flood New York. The floods caused around $20 billion (£15 billion) of damage. The Metropolitan Transportation Authority's (MTA) insurance policy paid out on that occasion, but when it came to renew it the next year, the insurer wouldn't offer the same terms.
The city found a more affordable alternative in a parametric insurance model developed by RMS. The new system uses a tide gauge on the southern tip of Manhattan to detect signs of a disaster and then instantly pays out when the threshold is surpassed.
"It basically decouples the occurrence of an event from its consequences in terms of damages," says Bartholomew.
"What FloodFlash is doing is taking that model and transferring it to mass market insurance. There are tens of millions of dollars in floods damage per year which are not currently covered by insurance, and we're hoping to help close that protection gap and we think that this kind of insurance is the right system to do that."
Floods are both the most regular and the most economically devastating natural disaster in the world, according to World Bank research, and the current lack of affordable insurance options makes the sector ripe for disruption.
Insurance company Guy Carpenter estimates that the gap in flood insurance protection represents up to a $40 billion potential new market for private insurers in the United States.
Parametric policies offer a new way to fill that gap and the effects of climate change will help to expand their market.
Extreme weather events are becoming more common, leading to record increases in insurance claims and growing demand for disaster insurance, which FloodFlash hopes to meet by reducing the costs of underwriting, insurance reserving and loss adjustment. These savings can then be passed on as savings to the consumer.
"With traditional coverage, it's difficult to deal with things like business interruption, which is inherently very difficult to quantify," says Bartholomew.
"Also, it can often be very unclear which things are included and which things are excluded in the small print of your policy, whereas with the FloodFlash policy, none of that is true. It's a very simple, clear and objective transparent trigger."
Preparing for disaster
FloodFlash is currently conducting a live pilot with a selection of SMEs in Carlisle and other parts of the UK with significant flood risk.
"Though the settlement that they would receive from the FloodFlash policy may not be perfectly commensurate with the cost of the dangers that they might experience, the thing that these guys really want isn't actually that pound for pound replacement," says Rimmer. "It's knowing that they have that lifeline where if the worst happens their business will survive."
The company has raised £200,000 from Hambro Perks and a further £1.9 million in seed funding from LocalGlobe, Pentech Ventures and InsurTech Gateway to accelerate a nationwide product launch planned for October.
The founders want to expand internationally, but also hope their service can form part of a broader flood risk management solution.
"Because of the structure where you effectively get paid at a given water depth, people are incentivised to become as resilient as possible," says Bartholomew.
"If you can be more resilient you either need less cover, or you can get paid when the water is deeper because you've got some other means of protecting yourself, and that is immediately reflected in your policy premium, which is something that you can't currently achieve with traditional insurance.
"Ultimately we potentially have a very rich source of data that we aim to use to help our customers understand their flood risk and respond when an event occurs. That's really crucial to us."