EXCLUSIVE: “As Quick as a Flash” – Adam Rimmer, FloodFlash in ‘The Insurtech Magazine’

Parametric insurers settle claims rapidly and with minimum fuss. FloodFlash CEO and Co-founder Adam Rimmer explains why speed is vital for SMEs on the brink

With the world dealing with more and more freak weather occurrences resulting from the effects of global warming, the insurance industry is facing a new frontier.

The recent floods in New York – on the back of the tragic flooding in Libya – are a timely reminder of the increasing human and financial costs that come with unexpected climatic extremes. But with only 20 per cent of the world’s $70billion annual flood losses insured, there is a clear under-insurance problem across the globe.While homeowners in Britain have a degree of protection through Flood Re – a joint initiative between the government and insurers whose aim is to make the flood cover part of household insurance policies more affordable – SMEs enjoy no such provision.

It is in this environment that parametrics have emerged as a solution to the under-insurance of flood risks. While traditional indemnity insurance pays out a claim based on the value of the loss suffered, parametric insurance policies settle only upon the occurrence of specified events (for example, weather events). Payment is automatically agreed when predefined triggers are met, such as depth of water in the case of floods.

A leader in this field is insurtech FloodFlash, which provides rapid payout policies that, it says, are changing the way landlords and businesses recover from flooding. Each policy it issues is linked to a mobile-connected sensor installed at the insured property. The sensor reports any flooding and, when the agreed trigger depth has been reached, it alerts FloodFlash which then kicks off the claims process, with no documentation or time-consuming appointment of loss assessors required.In many cases, payment is authorised in a matter of hours, rather than weeks – a lifeline for businesses that need to be up and running as quickly as possible if they are to recover at all from a flooding event.

As chief executive officer and co-founder of FloodFlash, Adam Rimmer explains: “A lot of these businesses are operating on fine margins; it is becoming an increasingly competitive commercial landscape out there. They need cash fast to be able to survive. And that’s where we can help.”We asked Rimmer to outline in more detail how parametric policies are transforming the insurance landscape and how FloodFlash’s three self-proclaimed core benefits – availability, flexibility and a fast claims experience – are playing out in the real world.

THE INSURTECH MAGAZINE: Parametric insurance has been around since the late 90s. Why would you say that it’s more relevant today than ever?

ADAM RIMMER: It’s really driven by a couple of things, both on the demand side and on the supply side. The problems that parametric insurance is best suited to solving, which are really around low-frequency, high-severity risks – like catastrophic floods, earthquakes, hurricanes and wildfire – are getting worse every year, and that is driven by urbanisation, which is driven by population growth, and by climate change.If you took at the population of the US, for example, you’d be hard-pressed to disperse the population in areas more exposed to natural catastrophes – it’s either earthquakes on the West Coast, or hurricanes on the East Coast.

“I don’t think it would be right to embed FloodFlash in every single household policy in the UK… I don’t want to be charging people who live on the top of a hill for cover they don’t need”

We’re also seeing traditional insurers step further and further back from covering these events, and the industry needs to find a way to step up to fill that gap.On the supply side, whilst this idea of parametric insurance has existed in various forms for a while, certain technologies now mean we’re in a position to be able to bring it to the mass market for the first time. Things like computer power, for example. If you’re modelling the outcome of a flood, or a storm surge event, that’s a difficult and computationally intensive task. Computers are now at a scale where we can reasonably do that, at a fine enough grid, in a fine enough resolution, to be able to put probabilities on water depths, on the ground shaking in an earthquake, on a building-by-building basis. And that means we can do customised, individual parametric insurance for the first time.

TIM: One of the biggest issues that we see for a lot of insurers is being able to meet the demands of specific customer segments – small/medium businesses, small landlords, small landholders and the like. How do you manage to serve them?

AR: These people are certainly left exposed by the industry, particularly small businesses in the UK. As I said, insurers are retreating, so, at the moment, if those businesses have flood cover withdrawn by their insurer, or if they have a very large flood deductible imposed by their insurer, then that business is on its own.

And the great irony is that the people that that’s happening to are, of course, the people who need it most, because they’re the ones that the insurers are worried about flooding.Maybe a good illustration of this is one of our UK customers, Martyn. He runs a manufacturing business in the Calder Valley, a beautiful area of the country immortalised in the TV show Happy Valley. But it’s had its real share of flood problems, over the years, and insurers won’t touch lots of businesses like Martyn’s.

He’s done all the resilience work, but still the insurers won’t cover him.He supplies major supermarkets; if he can’t get back up and running fast after an event, he will lose those contracts, he will lose his livelihood, and he won’t be able to recover from catastrophe. And that is the precise situation that we at FloodFlash are trying to stop happening. So, we were introduced to Martyn and installed his sensor. It’s just as well we did because about a year later, on February 9, 2020, Storm Ciara hit the UK. This was a catastrophic event for big areas of the country, but for the team at FloodFlash it was the first opportunity for us to prove that parametric insurance was not just a cool thing to talk about at conferences, but was actually a product that really saved livelihoods.

“In many cases, payment is authorised in a matter of hours, rather than weeks – a lifeline for businesses that need to be back up and running”

Anyway, the floodwaters came in, Martyn’s FloodFlash sensor sent the data to us back at HQ and we were able to verify the flood event. We ultimately sent him a full claim payment – that would normally take months to adjust and settle – within 24 hours of the event.  And that’s not from claim reported to claim proved, like a traditional insurer would measure it; that’s from water actually entering his building, to the cash entering his bank account. That meant that his business survived, it meant that his livelihood survived, and it meant that he recovered from catastrophe.

TIM: After an already stressful event, customers want insurers to remove as much friction as possible from the payment process. How can parametric insurance help with this?

AR: There’s a great stat from FEMA, the Federal Emergency Management Agency in the US, that says that 90 per cent of small businesses that don’t reopen their doors within a week of a catastrophe will close their doors permanently within a year. That tells you the significance of cash flow. And the speed of cash is more important to their survival than getting the perfect pound-for-pound indemnification. In many ways, that’s the trade-off with parametric insurance. You may not have perfect pound-for-pound indemnification – like life insurance, parametric insurance, is a pre-set pay-out, even though the customer can decide the amount that works best for them – but as long as that pay-out is about the right amount to get them up and running, that’s typically what a resilient small business owner wants. They just want to get going again.

TIM: How does the new technology of the FloodFlash sensors intersect with traditional insurance assessment to deliver those faster payments?

AR: We use Internet of Things technology, low-cost, low-power radio wave setups that allow us to, for the first time, monitor these natural hazard parameters at a low enough cost to make this work for the mass market.And the real crux is that we have decided the amount [of risk] up front, alongside the customer, and, typically, their broker. We have a tool called Smart Quote that brokers can use, and that helps them, alongside their client, to set the right trigger depths and pay-out amounts. Let’s go back to the example of the manufacturing business in the Calder Valley that I mentioned earlier. Martyn was able to say, ‘when water gets to 20cm, it’ll enter my building.

I’ll just need to clean it out. That’ll be about £10,000. When it hits 50cm, it hits my stock, which is worth about £50,000, so I’m going to need another £50,000 payout. When water gets to 80cm, that’s when it hits my machinery and that machinery is worth about £200,000, so that’ll be the amount I need.’He has this graduated series of increasing pay-outs, as water gets deeper and deeper, and affects more of his business.

This article was published in The Insurtech Magazine Issue 10, Page 40-42