Floodbase targets the future of parametric wind and flood cover
Floodbase, which was formerly known as Cloud to Street, has raised a $12 million Series A funding round, while announcing an evolution in its parametric flood risk transfer technology, to allow parametric flood cover to be added to an existing parametric hurricane product.
Floodbase believes it can take parametric flood insurance and risk transfer, utilising satellite observations and sensing data of earth, alongside hydrological data and a historical flood database, to construct parametric index triggers that can respond to flood events in near real-time based on actual events.
It’s good to see, as the potential for more granular satellite data and remote sensing driven flood parametric triggers is something we’ve discussed for more than a decade now.
As technology improves, alongside our understanding of and ability to model the built environment, constructing parametric triggers for flood risk transfer will become increasingly feasible, as accuracy of results improves.
Floodbase has integrated satellite observations with hydrological data and reams of historical flood data, enabling it to “consistently measure and monitor global flood risk in near real-time based on actual events, not just models.”
This, it believes is the innovation that can help insurers to “profitably underwrite and trigger parametric flood insurance.”
As a result, pay-outs can be fast, while also more closely matched to actual post-recovery needs, Floodbase says.
The company’s technology has been utilised in a micro-insurance program in Colombia, now Floodbase clearly sees an opportunity to expand into residential and likely commercial risks.
In announcing its rebrand and $12 million Series A funding round, led by Lowercarbon Capital with participation from Collaborative Fund, Floating Point and Vidavo, Floodbase announced its new product offering, integrating parametric flood cover into a hurricane wind cover.
They see this as a major shortcoming in flood triggers within existing parametric hurricane policies, and say their new offering can be layered on top of an existing parametric wind policy.
Floodbase constructs custom designed parametric indices for risk transfer, using historical data and policy structure, setting the thresholds using statistical analysis and back-testing, validating data and optimising structure for the location of coverage, then monitoring events and the trigger thresholds to trigger any payouts automatically.
“Floodbase recognizes the need to accurately measure and insure against the flood element in existing parametric hurricane insurance policies, which currently cover just wind,” explained Peter Lacovara, parametric insurance expert and Head of Commercial at Floodbase. “Layering Floodbase onto existing parametric hurricane policies will protect policyholders against the impacts of devastating flooding that typically causes the most damage during hurricane events.”
While we can’t speak for the Floodbase product itself, as we don’t have visibility of the indices it creates, nor how its reporting will work (critical for larger scale risk transfer), this is potentially interesting and relevant to the insurance-linked securities (ILS) marketplace.
Not only is parametric catastrophe risk attractive to ILS funds and their investors, but there are already numerous large parametric named storm and hurricane contracts out in the market, many with ILS capital backing them either directly or as reinsurance.
Right now, many of these parametric hurricane contracts, in insurance, reinsurance, or sometimes derivative and swap form, do not have any flood or storm surge coverage incorporated into them.
It’s far more common to see just a parametric wind contract, either based on measurements from anemometers on the ground, a modelled parametric loss approach, or reported wind speeds from an agency such as NOAA.
But these only contemplate the potential loss and damage from hurricane wind events, not hurricane water events. Recent history and the damage wrought by major hurricanes, as well as the losses paid by insurance, reinsurance and ILS markets, suggests hurricane water damage (surge, rainfall and resulting flood) can be as costly, particularly on an economic basis with so much of the damage uncovered.
Even the catastrophe bond market could see a use for a robust and defensible parametric flood index and trigger.
Many cat bonds cover named storm, hurricane winds and also storm surge and flood linked to a hurricane event, but these are largely indemnity or industry loss trigger instruments.
A parametric hurricane cat bond, that provides cover for the flood linked to a hurricane as well as the wind damage, could prove attractive to certain buyers of protection, such as corporates, government agencies, or other entities with significant coastal exposure.
In time, if the parametric triggers can be proven and more closely calibrated to match underlying exposures, then you could see the potential for parametric hurricane wind and flood cat bonds for reinsurance and retrocession needs, perhaps.
But, for any of that to happen, as we’ve been saying for years, the parametric trigger and index will need to be extremely well-constructed, transparent, made clear to both cedents and investors, while the reporting must be trusted and calculation processes clearly documented enough to feature in cat bond offering documents.
Which is all possible and it’s encouraging to see another startup developing technology that could one day become more relevant to our readership.
Clay Dumas, general partner and co-founder at Lowercarbon Capital, said of his firms investment in Floodbase and the products they are creating, “It’s a generational opportunity in global risk markets.”
It really is.
Bringing together increasingly advanced technology, with risk transfer product design, and capital market securitization techniques, could be the generational opportunity that the reinsurance and ILS capital providers have been looking for.
It’s something we’ve been writing about for well over a decade and increasingly things are moving in a direction that suggests parametric risk transfer is on the cusp of coming of age, thanks to technology driving greater accuracy, more customisation, closer calibration, and more real-time monitoring of natural catastrophe and weather events.
There is significant capital to support risk transfer structured to utilise robust parametric triggers.
So far, while parametric risk transfer is all the rage and there’s a lot of noise, it still isn’t really meeting its potential. The market is actually far smaller, in limit terms, than many would think given the amount of parametric startups we see today.
But, we are on the cusp of something much bigger and technological advances will greatly accelerate parametric risk transfer adoption.
We expect leaps to occur that drive entire categories of risk transfer to become far more responsive, both to the event covered and also to customer needs. We also expect parametrics to become more integrated with traditional insurance and reinsurance, in time.
It will be interesting to see whether Floodbase is one of the cohort of companies that can unlock the true potential of parametric risk transfer.
It’s encouraging to see they have focused on a product need that has relevance across the risk transfer scale, from being extremely relevant to those protection gap discussions where flood cover is almost non-existent to-date, up to covering home and business owners, right through to wide-scale reinsurance and retrocessional protection.
Bessie Schwarz, CEO and Co-Founder of Floodbase commented, “The world needs innovative financial and insurance tools if we are to have any hope of adapting to climate change. We are proud to be the leading calculation agent for parametric flood insurance, and now add flood protection to expand the coverage of parametric hurricane policies as well.
“This technology will enable the expansion of flood insurance to every corner of the globe, and bridge a protection gap that cannot be closed without parametric insurance. It is an exciting milestone for our company that we are proud to mark with a new brand and successful Series A funding round.”
Clay Dumas, general partner and co-founder at Lowercarbon Capital added, “Global warming leads to more water in the atmosphere, more water leads to heavier storms, heavier storms lead to greater flooding, and the predictable outcome is that hundreds of millions of people all over the world are newly at risk.
“The best protection is insurance, and Floodbase makes it possible for the world’s largest insurers to extend coverage to parts of the world that were previously uninsurable.”
“Parametric flood insurance is a critical tool for making communities and industries more resilient to climate-driven flood impacts, especially the agro-industrial sector that we invest in,” further explained Diego Casanello, Managing Partner at Vidavo. “There’s a direct line from Floodbase’s technology to risk mitigation for 500 million uninsured farmers worldwide.”
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