Whether it’s cryptocurrency or FinTech, there always seems to be a new market in which to invest. But a surprising category has been gaining traction lately: InsurTech. Yes, instead of focusing on technology innovations to compete with traditional financing methods, businesses are looking for ways to improve the efficiency of the insurance industry. And one company just proved it’s the next big thing.
FloodFlash, the InsurTech company that pays catastrophic flood claims within 48 hours, announced a Series A raise of $15 million. They already impacted the UK flood underinsurance problem and plan to use the investment to fuel international expansion and begin closing the $58 billion global flood protection gap, with the US representing the biggest opportunity. But why is flood insurance a great prospect for investors?
“Like everything, it comes down to supply and demand,” said Adam Rimmer, co-founder and CEO of FloodFlash. “From a demand perspective, it’s clear from the loss data that people need some form of financial protection from floods. For example, inland flooding cost people $151 billion over the last 40 years. That’s a staggering number considering it doesn’t include coastal flooding caused by hurricanes.”
Despite the obvious need for protection, only 5% and 15% of homeowners and 5% of small businesses carry flood cover. That might be because there is not enough cover available (NFIP only offers businesses limits of up to $500,000), or the premiums aren’t sustainable. In essence, the supply of affordable, effective insurance hasn’t kept up with demand.
Large-scale catastrophe insurers have been using data in interesting ways to provide parametric insurance to high-value clients for decades. However, the proliferation of low-cost tech and data processing means that new ways of insuring floods have emerged in recent years. FloodFlash takes the same principles from large-scale catastrophe bonds as they are known and applies them to the mass market.
“Perhaps the most important point for any investor is what we’re here to do,” said Rimmer. “Our mission is to help more people recover from catastrophe using parametric insurance. The result is cover that fills an immediate need today and a need that will grow extensively over the next few decades due to climate change. I might be biased, but any investor that doesn’t see that change coming won’t be around for long.”
Beyond investment opportunities, more people will also have access to competitive flood insurance for their properties. A byproduct is that more people will see the benefits of this new form of smart, tech-based insurance, including fast claims and more transparent policy documentation.
“As we’ve seen in the UK, all our clients that have experienced the products are converts and have a very different perception of insurance after using FloodFlash,” said Rimmer. “Processing a catastrophic flood claim typically takes months. We settled one in full 9hrs 44mins after water hit the client’s building.”
Long term, the global flood protection gap is estimated at $58 billion per year. So, FloodFlash is starting with that. In addition, there are several markets that they are keen to explore in the future, including Central Europe, Australia, and Japan. Beyond that, they make no secret that flooding isn’t the only risk that can be mitigated through parametric insurance, and InsurTech can expand immensely.
“In the coming years, I have no doubt we’ll explore other risks to see how our smart insurance can close other protection gaps around the world,” said Rimmer.