Paul Jones, Business Development Director – UK & Ireland at Descartes Underwriting, and Dr Andrew Pledger, IoT Systems Manager at Previsico, participated in a joint interview with InsTech’s Henry Gale earlier this month. They discuss how flood risk affects commercial properties and how to manage and transfer flood risk with forecasting and sensor technologies and parametric insurance.
Henry: Paul, can you give some background on Descartes Underwriting?
Paul: Descartes Underwriting is an underwriting agency focused on climate-related parametric insurance. It is based in Paris, with twelve offices around the world. Descartes was founded in 2018 and offers corporate insurance against climate risks on every continent, from wildfire covers in California and windstorm in the Gulf of Mexico to flood insurance in the United Kingdom (UK). Descartes continuously invests in new solutions through our research and development (R&D) department to stay ahead of the curve in such a fast-changing and complex risk environment.
Henry: Andrew, can you give some background on Previsico?
Andrew: Previsico is a flood forecasting and monitoring company specialising in surface water and small water course flooding that spun out from Loughborough University in 2019. It has offices in the UK and Hong Kong and delivers solutions to over 100 organisations globally. Previsico helps companies understand and manage flood risk using forecasting and sensor technologies.
Henry: Tell us about how Previsico and Descartes are working together in the UK & Irish markets.
Paul: Descartes Underwriting and Previsico’s collaboration focuses on helping companies based in the UK and Ireland better manage and transfer their flood risks.
Descartes Underwriting offers parametric flood insurance that uses Previsico sensors, public gauges or other sensor technology to execute the index. This means that when the flood depth at a policyholder’s location surpasses predefined thresholds, as determined by a Previsico sensor for example, it will trigger a rapid insurance pay-out.
Andrew: Policyholders will also benefit from the wider suite of Previsico technologies with the combination of flood forecasts and nowcasts and real-time sensor data to provide insights into flood risk. These insights help companies act before or during a flood event to mitigate the impact of the flood and minimise losses.
Henry: What types of companies is this combined solution available to?
Paul: This solution is for mid-sized businesses and corporate and government entities. It is designed for companies in any industry that face challenges managing their flood exposure. In particular, I expect it to be an appealing solution for utilities, water, manufacturing and high-end retail companies.
Henry: How would you describe the flood risks that affect commercial properties today?
Andrew: Flood is a globally pervasive peril. The United Nations Office for Disaster Risk Reduction states that on average, 250 million people are affected by floods around the world each year.
33% of commercial properties in the UK are at risk from flood and it is estimated that 40% of small and medium-sized businesses never reopen after they experience losses from a flood. Businesses need better solutions to understand, manage and transfer this risk.
Henry: How is climate change affecting flood risk?
Paul: Significant rainfall events make river bursts more likely and can also cause flash floods in areas where flood risk may have been low in the past.
Climate change will continue to increase the flood risks that affect properties and businesses. In turn, this affects insurers and their appetite to offer traditional flood insurance.
Henry: What factors are driving demand for parametric flood insurance in the UK?
Paul: Flood risk in the UK is becoming more difficult to insure. Insurers may offer coverage subject to large deductibles or excesses*, so businesses can be forced to retain more flood risk than they have appetite for. A parametric solution can help companies transfer the flood risks left uncovered by traditional insurers. For businesses that have had challenges settling past flood claims, parametric insurance offers greater certainty about when and how claims are paid. This should consequently help reduce the 40% figure above (businesses that do not reopen after a flood event), especially in hardening economic and financing conditions.
Henry: Can you explain how parametric flood insurance works with on-site sensors, such as those offered by Previsico?
Paul: With parametric flood insurance, if water reaches a certain depth, that triggers an insurance pay-out. The policy is bespoke; businesses can choose what pay-out quantity will be triggered at what water level, including multiple trigger points.
For example, if the sensor detects that the water level has reached the trigger for the parametric insurance policy at the policyholder’s location, the client, broker and Descartes is alerted automatically and can quickly process the claim payment.
Henry: Can you describe how the Previsico sensors work?
Andrew: Previsico provides connected sensors based on a variety of technologies, including radar and pressure transducer. The hardware is tailored depending on location and data requirements. The devices send level readings to an online portal, which customers can access, in near-real time. The portal can also can send alerts to customers and partners when certain thresholds are exceeded, with these alerts also being used to trigger parametric insurance policies.
Henry: How are the sensors installed and what do they look like?
Andrew: Previsico installs the sensors on a customer’s behalf and it typically takes less than 30 minutes to complete an installation. The sensors are small and un-intrusive. For some of Previsico’s radar devices, for example, a hand-sized sensor (which incorporates the telemetry unit and power supply) is attached to an arm that holds the device over the location it is measuring, such as above a water course. The arm is then attached to some nearby infrastructure like a wall. Devices can be installed both above and below ground, including within surface water and waste water drainage networks. You can see an example of Previsico’s sensors in action in this video.
Henry: What are the benefits of using on-site sensors for parametric flood insurance?
Paul: Having a sensor on site provides the most granular measure of water depth possible at a policyholder’s location. This helps to minimise basis risks, the risk that a pay-out does not match the loss incurred in the event of a flood.
It can also be combined with satellite imagery provided by our partners, which can be better suited to covering infrastructure over a large area, such as a housing association or agriculture.
Andrew: Previsico’s devices have a range of diagnostic features to allow us to gauge system health and validate water depth recordings remotely. This means the data that is used to trigger insurance payments can be robustly checked, providing confidence in the process.
Henry: How do you determine where the parametric insurance triggers are set?
Paul: Each organisation will have different requirements. For example, a pharmaceutical company that has strict sanitation requirements (clean rooms) making medicines or pharmaceutical devices could be greatly affected by a flood of even one centimetre. It will suffer business interruption losses if the clean room is breached and production is halted, not to mention additional clean-up expenses. A manufacturing company, on the other hand, may store most of its machinery half a metre above floor level. Descartes’ flood insurance is bespoke; triggers can be tailored to an organisation’s exposure and risk appetite.
Henry: How many sensors does each company need?
Paul: Normally, one sensor is sufficient, but it depends on each organisation’s needs. Some may choose to have multiple sensors at different locations across their infrastructure. They can also choose different parametric trigger points at different locations if their water level concerns vary, for example if they store critical machinery at different levels.
Henry: What services is Previsico providing to policyholders as part of this partnership?
Andrew: Previsico is providing two core technologies, flood forecasting and sensors, to help organisations manage their flood risk.
Previsico forecasts the depth and duration of surface water and ordinary watercourse flooding up to 48 hours in advance for individual properties or assets. Alerts derive from this forecasting, providing customers up to 48 hours’ notice of a potential flood event. Companies are using these alerts to move stock out of storerooms, move cars out of car parks, or take other measures that minimise their potential losses, both physical damage and business interruption.
Previsico’s sensors measure conditions on the ground, and are also used to generate alerts so that customers can take measures to mitigate losses during a flood event.
Henry: What types of organisations are already using Previsico’s services?
Andrew: Previsico works with organisations including water and energy service providers, councils, housing associations, schools and local flood action groups. Previsico is also partnered with insurance companies including Generali, Zurich and Liberty to offer these insights and alerts to their customers.
Henry: How do these forecasting and monitoring services from Previsico complement the parametric flood insurance Descartes offers?
Paul: No risk manager wants to buy more insurance. Their priority is to manage their risks effectively. Previsico’s services help organisations manage their flood risk by mitigating the impact of floods and reducing losses, while Descartes’ parametric insurance offers a solution to transfer the risk that remains.
Henry: What have been the highlights of your collaboration in the UK & Ireland?
Paul: Previsico has been responsive as we help brokers and their clients navigate flood risks in the region. We have worked together on challenges in modelling flood risks and testing the sensors for parametric insurance. The quality of Previsico’s data and devices and our experience dealing with the Previsico team has built up trust.
Andrew: Previsico and Descartes have different but complementary skill sets. It has been good to combine the technical aspects of flood forecasting and monitoring with expertise in developing and executing parametric insurance products.
Henry: What sort of companies would you like to connect with?
Paul: Descartes Underwriting would like to connect with brokers who would like to offer this solution to their clients. Organisations interested in the solution should speak to their broker, who can contact Descartes on our website.
*A deductible or excess in an insurance policy is the amount the policyholder is responsible for paying towards an insured loss. In the event of an insured loss, the claim payment equals the insured loss minus the deductible or excess.