The parametric insurance program protects businesses against power outages.

Increased risks of severe weather such as hurricanes and tornadoes can knock out power for millions of residents when power grids are affected. The impact of power loss can be especially hard on small and medium-sized businesses because according to FEMA, 40% of businesses do not reopen after a disaster and another 25% fail within a year. According to the Electric Power Research Institute, a power outage can cost a business an average of $5,000 per minute.

An Austin-based company is trying to increase the odds for many businesses by offering a new option to protect against climate risks. Adaptive Insurance, which uses AI and climate data to provide short-term parametric coverage, can help companies design a policy that allows them to select the outage period and amount of coverage required for recovery. Through its GridProtect coverage, Adaptive can verify the outage through third-party data and pay policyholders, often within days. Perils covered include wind, precipitation, fire, flood, and even temperature fluctuations (heat or cold).

A parametric policy can provide insurance for a short period before a traditional policy takes effect, and technology improves the options available.

The role of technology in verification
“Adaptive’s technology plays a critical role in identifying and verifying outages and impacted businesses,” Adaptive CEO and co-founder Mike Gulla told Digital Insurance in a statement. “We can’t do what we do without technology. We use real-time network data to proactively identify outages at a granular level, i.e. street addresses. We also use our technology to cross-reference weather data and integrated IoT devices. to help verify that an event has occurred, which allows us to fully automate the claims process.”

The ability to reduce the financial shock of a power outage can remove much of the financial uncertainty for businesses. Power grid failures have increased in frequency as systems age and weather becomes more severe. In Texas, there have been more than 210 climate-related outages since 2000.

As many companies find new uses for AI, Adaptive is proactively using it. “The core of our technology is in our AI model. It fuels data analytics that allows us to build better products and pricing models with customization, flexibility and rapid deployment that weren’t available even five years ago,” says Gulla. “We can integrate claims processing as well as risk management and underwriting, all resulting in the identification and verification of outages and affected businesses with confidence.”

Adaptive is initially focused on the commercial and SMB market (2-500 employees) in the US, an underserved market that suffers $150 billion in power outages annually, yet only 60% of companies have insurance. “We are targeting the types of businesses most acutely affected by business disruptions caused by weather events and widening gaps in traditional insurance, including those in retail, hospitality, professional services, clinical and medical practices, manufacturing and construction,” says Gulla.

Adaptive Insurance is one of the first companies at Montauk Climate, an incubator focused on climate technologies. “Climate and weather events cause $1 billion in damage every three weeks in the U.S.,” said Philip Krim, founder and partner at Montauk Climate, in a press release. “We launched Adaptive to tackle this huge and growing problem with a new approach that is both efficient and scalable.”