Nine hours and 44 minutes — for one North Yorkshire-based property business, that was all it took between water flooding its premises and an insurance payout hitting its bank account in January.
Storm Christoph, which brought heavy snow and flooding to many parts of the UK earlier this year, provided a test for London-based FloodFlash. The insurtech specialises in parametric insurance: a kind of rapid-response cover that pays in full when a pre-determined trigger, or set of triggers, are activated. The model, which sidesteps the traditional process of claim, investigation and loss adjustment, is attracting growing attention from both venture capital investors and traditional insurance names.
FloodFlash has roots in the insurance industry: co-founders Adam Rimmer and Ian Bartholomew worked at risk modelling firm RMS in the aftermath of Hurricane Sandy in 2012. At RMS they advised on a parametric catastrophe bond for the New York Metropolitan Transport Authority, designed to pay out when water in the city’s harbour reaches a certain depth.
The founders sought to make this sort of cover available to small UK businesses. After designing a pricing algorithm and a water sensor to be installed at policyholders’ premises, FloodFlash started trading two years ago with the underlying insurance provided by Everest Re’s syndicate at Lloyd’s of London.
“This could actually pretty much redesign insurance for these increasingly occurring peril events, which traditional insurance and underwriting just does not work for,” said Remus Brett, a partner at venture capital firm LocalGlobe, which has invested in FloodFlash. “We’ve been through a few storms and we’ve seen the model properly tested.”
FloodFlash, which currently provides a total of more than £50m in small-business flood insurance cover, is just one of a new guard of tech-based parametric insurers making their presence felt.
New York-based Arbol, which announced in January it had raised $7m in a Series A fundraising round, offers parametric insurance in areas such as agriculture, where it covers farmers in the event they suffer too much or too little rain, and promises to pay claims automatically within two weeks.
Parametrix Insurance, backed by Lloyd’s of London, offers cover against server downtime for cloud computing, web hosting and other service providers. The company promises to “cut down claims costs by eliminating the need for loss adjustment processes, forensic and legal investigations, and other costly and time-consuming measures.”
And Denver-based Parsyl, which raised $15m in Series A funding last year, offers cover against losses caused by temperature changes for goods in transit such as seafood and life sciences products.
The parametric model has some limits. It relies on triggers that need to be set carefully, and understood perfectly by each stakeholder. LocalGlobe’s Brett said “the whole beauty of parametric is the certainty it should provide on all sides”, but “the traditional traps of quasi-loss adjustment [and] the claims process” can reappear if trigger events are unclear or blurry.
Building specific hardware such as water sensors also creates extra challenges and risks that have put off some venture capital investors.
Insurance experts say the traditional claims and recovery model has its benefits, such as being able to provide greater personal support to customers who are likely to be going through a difficult time. Many big insurers are focusing on working out what services they can provide to stop claims happening in the first place, as much as they are on speeding claims through.
Parametric policyholders must sometimes sacrifice breadth of coverage for speed of payouts. The question is how much of the market would be better suited to a quicker-to-pay, if less holistic product.
“We’re not aiming for the pound-for-pound replacement values that you would necessarily have with traditional insurance, what we are aiming to do is give our customers the ability to recover from a catastrophe,” said FloodFlash’s Bartholomew. “We think that the key thing for that is cash quickly.”
Quick Fire Q&A
What’s your name? algbra — inspired by the algebra of Muhammad ibn Musa al-Khwarizmi.
When were you founded? During the pandemic, in May 2020.
Where are you based? HQ is in London with operations also in Kuala Lumpur.
Who are your founders? Zeiad Idris, previously co-founder of an FCA regulated merchant bank, and Fizel Nejabat, an ex-Magic Circle lawyer.
What do you sell, and who do you sell it to? algbra provides financial products to suit the needs of values-based and socially-conscious consumers, especially those who are currently excluded.
How did you get started? Covid-19’s disproportionate impact on minorities urgently highlighted the existing racialised wealth and social gaps and accelerated our start plans.
How much money have you raised so far? £3.75m of seed funding to date.
What’s your most recent valuation? £25m post-money.
Who are your major shareholders? SFC Capital, British Business Investments and New World Capital Advisors.
There are lots of fintechs out there — what makes you so special? Tier 1 team with deep expertise and lived experience; technology and global network to address financial exclusion on industrial scale.
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The Wirecard inquiry exposed a series of failures among German regulators and politicians, but at least there are signs some people have learned from the affair: the FT separately reported this week that deputy finance minister Jörg Kukies, who was criticised for cosying up to disgraced Wirecard boss Markus Braun, resisted a series of advances from former UK prime minister David Cameron, who lobbied on behalf of Greensill Capital last year. The swift collapse of Greensill, which less than two months ago was being heralded as a UK fintech success story, means drama-seekers in the UK will soon have several of their own inquiries to look forward to.