The ‘most exciting’ development in parametric insurance is its use in non-damage business interruption, says broker success manager

BrokerFest 2021: With water being the “biggest risk to UK properties”, parametric insurance can work to reduce claim complexity while providing clients with more well-rounded cover, so they can “recover and become more resilient as a business”, said FloodFlash broker success manager Ola Raji.

Surface flooding is the most widespread form of flooding in England, with around 3.2 million properties at risk, according to the Department for Environment, Food and Rural Affairs (29 July 2021).

FloodFlash aims to tackle this particular risk using a parametric insurance model, where an Internet of Things sensor measures flood depth at a property. When setting up a policy, clients will set the exact flood depth that will trigger a claim payout, as well as decide how much compensation will be paid in the event of a claim.

Parametric insurance can therefore be beneficial because cases of flood loss would usually require a loss adjuster to visit the claimant’s property to avoid fraud. “In that time, you increase the business interruption [and] the quantum of loss increases – things rot as the damage [grows]”, explained Raji.

However, with parametric cover, the loss can be reduced because insurers can assess and evaluate the damage in real-time – all driven by data.

FloodFlash’s sensor, which measures the amount of damage as a flood occurs, provides a “really fine-tuned picture of what the risk looks like”, said Raji.

The sensor produces a reading every 60 seconds, providing the company with a report every 24 hours.

In January 2021, the insurtech set a new catastrophe claims record by taking just nine hours and 44 minutes to complete a full settlement following Storm Christoph. 

Raji was speaking exclusively at Insurance Times’ BrokerFest 2021 conference on Monday 11 October, in a session titled ‘The MGA Survey Results’, chaired by Insurance Times content director Saxon East and head of research Savan Shah.

Shah noted that 38 MGAs took part in Insurance Times’ MGA Survey this year, up from 30 in 2020 - the MGAs were rated by over 1,000 brokers. FloodFlash achieved a five-star rating.

Lorega, MPR Underwriting, David Oliver Associates (DOA) Underwriting, Iprism Underwriting and Prestige Underwriting also received five stars following 2021’s survey.

Beating traditional policies

FloodFlash was founded by chief executive Adam Rimmer and chief scientist Ian Bartholomew after the extensive flooding caused by Hurricane Sandy in 2012, which caused billions of dollars worth of damage. This resulted in the New York Transit Authority finding it impossible to renew its cover.

The insurtech then developed an insurance policy that would pay $200m (£146m) if the water rose above eight and a half feet in the New York Harbour – this was a “lightbulb moment” for FloodFlash’s founders to make this type of insurance more accessible.

Despite parametric insurance not being new to the market, as the ancient Romans used a similar concept for bottomry contracts, Raji explained the “most exciting area” for this type of insurance is non-damage business interruption.

He said: “We’ve got sensors on golf courses that don’t cover the buildings, they’re actually covering other risks that [have not] been able to be covered by traditional insurance, so it’s a great complimentary cover.

“The smartest brokers that we’ve got [are] buying new policies every other day because they can see the opportunity and they’re looking to speak to clients straight away. Then you get other [brokers] that are just reacting to the market – if there’s an exclusion or restriction then they come to us, which we don’t mind either, but it can be a really amazing opportunity for the smart.

“There’s not been a time in the world where [so many] people understand the importance of the balance sheet and getting payments as fast as you can.

“So, in any element of cover, if you can have something that could help you immediately, take away those sleepless nights, give you a good experience of the cover that you have and almost give you the chance to not have to make further claims, is the way forward.”