Climate change is making floods more frequent, severe, and costly. Now, some cities are turning to artificial intelligence (AI) to better insure against risk.
Fremont, California has become one of the first cities to purchase parametric flood insurance shaped by AI. Unlike typical flood insurance, parametric policies kick in when there is a pre-defined trigger event (i.e. a certain rainfall amount) rather than damage to individual buildings. They cover entire areas instead of specific infrastructure. Since there is no post-event damage assessment needed, payouts typically come within 30 days.
Governing.com explains how the city made the decision to switch:
Sitting high and dry on a hill, the police complex in Fremont, Calif., was the one municipal facility with flood insurance. This was because the hill was technically in a flood plain and the building served as collateral for a bond.
Steven Schwarz, Fremont’s risk manager, found this frustrating. “I have to insure a building for flood that's never going to be flooded, whereas I’ve got other places in the city that potentially could be flooded,” he says.
When Schwarz brought his concerns up to the city’s insurance broker, they recommended switching to a parametric policy that would cover the city.
Parametric flood policies have become more accurate and mutually beneficial thanks to AI. Platforms like Floodbase use satellite, rainfall, and hydrological data to model risks. That information is then used to build these policies.
Under Fremont’s new insurance, the police complex is still covered, but that coverage expands to 100 additional square miles. If a disastrous flood strikes, some of the broader economic losses would also be offset by the payout.
Learn more about Fremont’s new policy and the future of AI-driven coverage here.