reThought has cracked the code on flood insurance

Ian Pinnington
ArcTern Ventures
Published in
4 min readJul 30, 2021

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Climate change-driven flooding is increasing, yet flood insurance coverage remains low — reThought plans to change this

ArcTern Ventures is excited to announce its investment in reThought Insurance. Founded by Cory Isaacson (CEO), Nicholas Lamparelli (Chief Innovation Officer), and James Rice (President, reThought Specialty), reThought is a tech-enabled flood insurance provider, initially focused on commercial and high-net-worth (HNW) properties in the US.

Drawing on the Founders’ experience working in senior roles at industry-leading catastrophe modeling companies, including RMS and AIR, reThought has developed a unique “model convergence” engine that combines multiple existing catastrophe models (cat models), site-specific data, and historical data into one unified model to accurately price flood risk — an achievement that has long eluded private and government-backed flood insurers.

ArcTern recently participated in reThought’s $15.5M Series A round, joining lead investor Telstra Ventures, as well as Hudson Structured Capital Management and existing investor ManchesterStory Group. Other existing investors include Menlo Ventures and Streamlined Ventures.

Climate change-driven flooding is increasing, yet flood insurance coverage remains low — but why?

The frequency and severity of flooding and extreme weather events is increasing (as well as flood-related losses), yet flood insurance uptake rates remain low (only ~15% of US homeowners have flood insurance), including in flood-prone areas.

Source: NOAA Climate.gov, 2010–2019: A landmark decade of U.S. billion-dollar weather and climate disasters
McKinsey & Company, Insuring hurricanes: Perspectives, gaps, and opportunities after 2017

Historically, flood has been underserved by private insurance because it has been viewed as an “uninsurable” risk, driven by a lack of reliable tools to accurately predict and quantify flood losses. Insurance companies have tried to move into private flood insurance in the past, but failed (in part) due to their reliance on a single cat model and insufficient understanding of how these models actually work, ultimately resulting in incorrectly priced policies, undue risk exposure, and low uptake. As the reThought team explained to ArcTern, in contrast to other perils, “flood insurance is a peril of inches”, and before reThought, nobody had a unified set of tools to understand building-level flood exposure elements, such as first-floor elevation.

The US government has attempted to fill the flood insurance gap through the US National Flood Insurance Program (NFIP), a government flood insurance program managed by the Federal Emergency Management Agency (FEMA) — but NFIP policies do not provide sufficient financial protection from flood events, with only a $500K limit for commercial buildings and $250K limit for residential buildings. NFIP is also heavily indebted, with flood losses far outstripping premium payments due to i) discounting premiums to promote affordability and ii) insufficient risk modelling tools to price flood risk.

The result is a massive untapped private flood insurance opportunity, estimated to represent ~$40B in gross written premium potential in the US alone (including residential and commercial markets).

Source: Verisk, Sizing the Personal Flood Insurance Market

reThought’s “model convergence” engine is a first-of-its-kind breakthrough in the flood insurance market

reThought’s “model convergence” strategy combines multiple existing cat models, site-specific data, and historical data into one unified model to more accurately price flood risk. The model can be broadly categorized into i) exposure data (information about the property and replacement values), ii) hazard data (e.g. the likelihood, magnitude, and location of potential flooding events), and iii) damage estimation and policy pricing. reThought is increasingly using machine learning to automatically augment underlying cat models with 10+ additional data feeds to better predict flood risk exposure and flood events. The company’s mobile app SnapIt Inspection® enables easy on-site property inspections, providing additional site-specific data for the risk model.

reThought’s early success is not only demonstrated by rapid growth in gross written premiums and the company’s impressive loss ratio, but also by it’s top-tier partnerships across the insurance value chain, including two top-10 reinsurance backers, leading US commercial and residential property insurance carriers, and two of the top-10 largest wholesale brokers in the US. All the critical pieces for success are now in place, and with this funding round, reThought is poised to quickly fill the US flood insurance gap.

reThought is playing an important role in climate change adaptation and resilience

With the increasing frequency and severity of flooding events, residential and commercial property owners face potentially devastating financial risk exposure. At ArcTern, we view climate change adaptation and resilience as an important and necessary complement to climate change mitigation. We see reThought’s flood insurance products playing a critical role in i) helping people and businesses manage the financial impacts of climate change-driven flooding and ii) pricing flood risk into long-term property selection and development decisions. reThought and its underlying cat model providers incorporate leading climate change science and scenarios to ensure flood predictions are not only based on historical and site-level data, but also on the trajectory of our changing climate.

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Ian Pinnington
ArcTern Ventures

VC @ ArcTern Ventures investing in breakthrough technologies for a better planet