Why IoT devices are game-changing for flood insurance market

80% of the world’s catastrophic flood losses aren’t insured. That’s a $58bn bill each year for governments, businesses and people. The problem is getting bigger too, because of climate change, population growth and urbanisation. In a world of increasingly extreme weather, IoT is game changing for the flood insurance market.

IoT devices can support the management of flood risk throughout the resilience journey. Predictive technology helps communities at risk prepare for flooding; they can help monitor dykes that become blocked; or they can advise people to evacuate if rivers reach dangerous levels.

These are incredibly powerful tools for insurers and recovery teams. The data that the devices provide can expedite claims and inform the focus for emergency response teams. It also unlocks powerful new forms of insurance – including parametric models.

Unlike traditional forms of insurance, parametric insurance pre-specifies the amount of payout based on predetermined trigger events. Typically, parametric insurance has been limited to the largest businesses, with satellite technology dominating existing products. As well as the high cost, the data that satellites provide often compromises on reliability and accuracy – in many cases requiring ‘ground-truthing’. However, the advent of affordable, accurate measuring devices and efficient data processing have led to a parametric insurance boom. Sensors are one such device. Historically, sensors have been very expensive to produce and monitor, but that has changed in recent years.

In addition, parametric flood insurance has increased in profile massively with the increased frequency of extreme storms caused by climate change and urbanisation – which means that insurers, brokers and clients are all much more open to this form of insurance.

An example of this recent innovation in flood insurance is FloodFlash, which provides a form of parametric insurance. They combine computer models, cloud software and Internet-of-things technology to do one thing: help more people recover from catastrophic flooding. FloodFlash attaches a proprietary IoT sensor to each client’s property. The sensor takes millimetre-accurate depth measurements, sending them to FloodFlash HQ. When flood water reaches the client’s pre-selected trigger depth, FloodFlash begins the claim process. What’s incredible about this is that this type of technology simply couldn’t have existed 20 years ago.

Rapid claims enabled by IoT technology represents a step change for businesses where business interruption can cause severe losses such as hospitality, manufacturing and healthcare. It makes a huge difference in recovery for whole communities that these businesses support after flooding. When businesses can quickly recover after catastrophic flooding, people can get back to work and more quickly recover economically. This is how insurance is supposed to be – focussed on the best recovery outcomes.

The speed and transparency of FloodFlash’s claims have changed the way businesses view flood insurance across the UK, and now the US. In November 2022, FloodFlash broke their own record by paying a claim in full in 3 hours and 50 minutes – the sensor triggered at 9:40 in the morning, and the full payout was in the client’s account by 1:30pm the same day. For businesses affected by flooding, a rapid payout like this is critical. It reduces stress, speeds up recovery, and allows businesses to reopen within days. It’s a far cry from traditional cover which can take months, if not years, to reach the final payment.

The threat posed by climate change and urbanisation and resulting increased flood risk has necessitated a paradigm shift for the catastrophic flood insurance market. Parametric models with IoT sensors are the future of managing – and recovering from – ever-increasing flood risk.