Catastrophe risk modellers JBA Risk Management and insurtech start-up FloodFlash have teamed up to launch what they claim to be the first property level parametric flood insurance product.
The product utilises sensors developed by FloodFlash, which are installed in homes and businesses to provide a measurement source for data that can be used in the parametric trigger.
As a result the basis risk is significantly lower, given the location of the data source for the trigger being directly within the property that is protected.
The pair say the initiative will offer “bespoke insurance for policyholders in frequently flooded areas who have traditionally struggled to obtain cover.”
In the UK this has been a particular issue, after floods left homeowners in some regions finding it hard to secure flood insurance any more.
JBA’s UK 5m Flood Map and UK Flood Event Set have been combined with FloodFlash’s hardware, the FloodFlash sensor, to create a product that the pair says applies risk transfer methods more commonly seen in large-scale transactions such as catastrophe bonds or reinsurance, to individual property and business owners.
This is actually where this gets interesting for us, as the potential for FloodFlash’s sensors to also be used to provide much higher value or exposure related protection is clear.
A network of such sensors could be installed around high-value commercial property in flood zones, enabling large parametric risk transfer transactions to take place using a FloodFlash trigger, which would be appealing to third-party reinsurance capital investors and ILS funds.
The potential is also significant around the world. Flood events such as the Thailand flooding in 2011 showed that enormous commercial exposures exist in high risk flood zones and while insurance on an indemnity basis can be hard to secure, entire commercial zones could be covered using sensor-derived parametric flood triggers, with catastrophe bonds, ILS capital and reinsurance markets providing the backing.
Critical to the FloodFlash approach is pricing the risk in the first place and here JBA’s 5m Flood Map comes into its own, allowing water depths to be taken for each potential risk location at a range of return periods, at an individual building level.
From this risk metrics can be derived to enable pricing of the policy, while the FloodFlash sensor provides real-time flood depth reporting at property level, in a manner the pair of companies say is more accurate and affordable than anything else on the market.
When the sensors are triggered by a flood depth agreed in the policy, the claim will be verified and payment can be made.
This removes both time and uncertainty of loss-adjustment, meaning homeowners and businesses can begin their recovery in days, rather than the months that traditional insurers often require to validate a claim.
Jane Toothill, Director at JBA, commented, “FloodFlash’s micro-scale application of parametric insurance at property level is unique and exciting. It demands extremely high-quality underlying data and we’re proud to be able to provide this so as to support FloodFlash’s initiative.”
Ian Bartholomew from FloodFlash added, “No business should fail due to flooding. When we noticed that businesses in Britain were unable to get adequate cover we decided to act. We combine technology and data to provide resilience to the businesses that need it most. JBA’s global flood maps and analytics are essential tools for us in developing FloodFlash and providing the right cover to those clients. The JBA UK Flood Map is the best in the market and, with their ability to work flexibly, JBA’s specialist team are always on hand to offer technical support and guidance.”
FloodFlash is an interesting start-up, as sensors have the potential to drive the responsive insurance and risk transfer markets of the future.
As models improve, sensors become ubiquitous and customer needs the driver of protection, these approaches are likely to become more widely used, across personal, commercial and also reinsurance transactions.
FloodFlash currently operates in the UK only, but plans to expand globally using JBA’s flood risk models and data.
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