Next-gen insurance startup Adaptive Insurance has closed a $5 million seed round to grow and launch its first climate-related insurance product, the company tells Axios.
Why it matters: The traditional insurance industry is struggling to adapt policies to keep up with the changing climate.
Zoom in: Congruent Ventures led the round, and investors Montauk Climate, Generation Space and other private funders joined in.
How it works: Adaptive offers so-called "parametric insurance" that pays out an agreed-upon amount based on a specific event.
- Parametric insurance has been around for years in sectors like agriculture, but insurers like Adaptive are using AI and data tools to make parametric policies that are cheaper and more nimble, enabling smaller businesses to buy them.
- Parametric insurance is "a core component of what's coming in insurance" and will help businesses and consumers navigate the climate shift, says Adaptive's CEO and co-founder Michael Gulla, a long-time insurance executive.
- Adaptive's first insurance product, GridProtect, offers businesses parametric insurance coverage for power outages under 24 hours. For example, a restaurant could buy coverage for the loss of food when refrigeration shuts down for half a day.
Zoom out: The amount of power outages in the U.S. is growing as extreme weather events become more common and increase in intensity. Meanwhile, power grid infrastructure is aging.
What's next: Adaptive plans to launch its power outage insurance product in the coming months.
State of play: Adaptive is just one startup that's raising investor funds in the increasingly hot climate-related insurance space.
- Delos Insurance uses AI and data tools to develop more accurate modeling for wildfire insurance coverage, and CEO Kevin Stein told Axios last month that its insurance product performed well during the LA wildfires because its models were able to more accurately identify regions that faced more or less wildfire risk.
- Accelerator Plug and Play has an entire cohort of insurance startups (called Insurtech), and many are using AI to develop new insurance products. Not all are focused on climate data.
The big picture: Power outages are just one risk that's rising with the changing climate and challenging traditional insurance companies.
- Wildfires, floods, deep freezes and heat waves are all becoming more destructive and more common, and insurance companies are floundering, even refusing to insure certain regions.
- Insurance broker Aon pointed out in a report from last year that only 40% of weather and climate-related losses in 2023 were covered by insurance.
- The traditional approach of insuring properties in areas prone to wildfires or floods works well in a static environment but doesn't work in a dynamic climate-affected environment, says Stein.
The bottom line: Climate change is upending insurance, but startups are using AI and data tools to build new climate-resilient insurance products.
