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Unlocking large-scale parametric flood insurance with reliable, continuous data

Written By:
August 30, 2023

By 2050, $1.5 trillion dollars of global GDP faces riverine or coastal flooding risk— that’s more than the GDP of Spain. Despite the magnitude of risk at stake, 83% of economic losses from flooding went uninsured over the last decade.  

A large portion of this underinsured loss stems from complex, large-scale risk within corporate and public sectors. Economic loss caused by non-damage business interruption, supply chain disruption, disaster recovery financing, etc — is largely uninsurable using traditional indemnity solutions or parametric products designed for private homeowners.

Floodbase partners with re/insurers and brokers to profitably design, underwrite, and monitor large-area parametric flood insurance products. Pairing decades of historical flood data with near-real time monitoring, Floodbase provides an end-to-end data solution for covering previously uninsurable economic loss. 

Unmet demand for large-scale flood risk
Hurricane Hilary, mapped hourly across Southern California

Risk holder demand for flood coverage is on the rise, however demand is increasingly going unmet, leaving behind billions in untapped premium. This is primarily due to:

  • Access to reliable, up-to-date historical loss data, required for underwriting.
  • An inability to generate continuous, near-real time data consistent with historical data, required for payout triggering.
  • An overemphasis on depth as a parameter, which requires pixel-perfect accuracy across multiple datasets 

Several massive corporations have recently sought parametric flood insurance. But, lacking the above data, insurers could not provide a product that covered the clients’ risk. Here are a few examples:

  1. Business interruption: A large healthcare facility survived Hurricane Harvey without getting its floors wet but still lost millions in revenue following canceled elective procedures when patients could not get to the hospital. Traditional indemnity policies only cover physical damage; alternate parametric options were unable to monitor the large geographic footprint of the surrounding areas of the hospital.

  2. Hard-to-model locations: A national government sought a flood insurance program for thousands of smallholder farmers across remote regions of the country. They required flood insurance that would pay out near instantly to mitigate food security risks nationwide. Ultimately the risk proved too sprawling, and payouts proved too slow, for insurers to offer a traditional indemnity flood program.

  3. True parametric hurricane cover: A large hotel chain had several properties in Hurricane Alley and sought a parametric policy to cover lost revenue across their portfolio. The only available insurance product was a parametric wind-only cover, leaving them exposed to the kind of extreme hurricane-driven flood losses seen in Hurricanes Katrina, Harvey, and Ian.

As evidenced by these examples, there is growing opportunity in developing new parametric flood solutions. Leveraging 10 years of proprietary science, Floodbase delivers the data to power these products. 

Floodbase: An end-to-end data solution for parametric flood

Pairing decades of historical flood data with near-real time monitoring, Floodbase provides an end-to-end data solution for parametric flood insurance. The solution accurately captures the magnitude of the flooding within large, customizable boundaries. This approach delivers the critical data required to insure against complex, sprawling flood risk:

  • A single, consistent data source for underwriting and monitoring: Accurate underwriting requires decades of historical data on flood occurrences, magnitude, and damage assessments. Critically, Floodbase uses the same data source for pricing and monitoring, reducing basis risk and making underwriting more reliable. Leveraging satellites that have been in orbit for decades, Floodbase maps flooding going back 44 years across the US and 23 years globally. 
  • Reliable, continuous flood monitoring: Public satellites capture flood imagery up to twice a day, but payout triggers may occur between passes. This is why Floodbase fuses satellite observations with hydrological data for gap-free, continuous monitoring. Floodbase’s US Layer enables hourly monitoring across the contiguous United States, leveraging machine learning models to map flooding regardless of cloud cover or terrain. Floodbase’s Global Layer monitors daily, using a constellation of public and private satellites, and proprietary water segmentation algorithms.

  • Flooded area mapped over large areas of interest: Floodbase primarily triggers payouts based on a measurement of a flood event’s extent—the square meters of flood water—over a given area. Flood extent is a consistent, reliable measure of a flood’s magnitude over a large area. This is in contrast to measuring flood depth via tasked satellites or gauges, which is difficult to extrapolate over large areas and requires pixel-perfect accuracy across multiple data sets.

How it works: Retail use case

Let’s look at an example of how Floodbase can enable parametric flood insurance for a previously uninsurable asset.

A retail chain opened dozens of stores in flood-prone American cities. While many of the stores are in malls, foot traffic—and resulting revenue—drops drastically following major floods. This risk of economic loss can’t be covered by traditional insurance, so they sought a parametric flood policy that would trigger anytime a major flood occurred in surrounding areas, regardless of physical damage.

Designing and underwriting parametric flood insurance with Floodbase is simple:

1. Define areas of interest (AOI). An insurance partner simply has to identify the client’s point(s) of interest and the key risk(s) they are looking to insure. In this case, the client was looking to cover economic loss caused by lack of foot traffic to the store after a flood. With this in mind, Floodbase designed a 30 km circle around each of the store’s locations. The design of AOIs is flexible and customized based on a client's needs.

2. Design an index: Floodbase then maps the local, historical flood risk for each relevant AOI to generate data that enables an underwriter to define payout thresholds, price and backtest the flood index.

3. Continuously monitor and alert on triggers: Once a parametric flood policy is bound, Floodbase continuously monitors the relevant AOI(s) (hourly in this example, as all locations are located in the United States) to determine if any flooding surpasses the predefined payout thresholds.

If a payout threshold is surpassed, Floodbase automatically alerts any relevant insurance partner via API, email, or other channels desired by our partners.

Powering the next generation of flood protection

While still widely considered a secondary peril, flooding stands as a leading driver of huge physical damage and economic loss. As this risk grows, so too will demand for more comprehensive and innovative flood insurance.

Floodbase partners with leading brokers and carriers to co-develop and distribute new kinds of parametric flood products. To learn more about Floodbase’s end-to-end parametric flood solution, and how to leverage Floodbase for covering large-scale corporate and public sector flood risk, get in touch with our team.