Willis has launched a sensor-based parametric insurance solution for UK racecourses that responds to localised flooding. Royal Windsor Racecourse, one of 16 venues operated by Arena Racing Company (ARC), is the first site to adopt the policy, having previously been considered uninsurable for flood risk because of its position directly on the River Thames.

The solution involves installing a flood sensor at a location on the insured property. When the sensor detects water levels reaching the selected trigger depth, ARC automatically receives a payout that scales according to the maximum water depth, up to the agreed policy limit. 

How the Willis solution will address the UK's flood risk landscape

Flood risk is rising across the UK. Often located on low-lying floodplains, racecourses are especially vulnerable to flood-related property damage, requiring costly clean-up, repairs and refurbishment, as well as financial losses from business interruption. Traditional indemnity insurance has largely failed this sector as conventional cover often falls short in high-risk areas, producing steep premiums, large excesses, or outright exclusions.

With this new solution removing uncertainty, cost, and time from the claims process, claims are paid quickly with no protracted loss adjustment process. The continuous monitoring of water levels also provides early warning of potential flooding, enabling policyholders to implement flood risk management protocols, including moving sensitive equipment to higher ground.

Legal and regulatory considerations

Parametric insurance has brought with it a new set of legal and regulatory considerations that must be navigated to ensure compliance and protect all parties involved. 

To protect consumers, insurers must fully disclose how the contract works, including any limitations of coverage, and regulatory authorities must scrutinise the fairness of the contract terms and the adequacy of the insurer’s reserves to meet potential claims. 

To avoid disputes, the definition of ‘trigger event(s)’ must be clear, objectively measurable and verifiable, and the data used to assess the trigger events should come from reliable and independent third parties. 

Further, the payout structure must be clear and unambiguous. This includes ensuring that the payout table aligns with the likely level of loss, to ensure that the policy response matches the loss suffered. 

The tax treatment of parametric insurance payouts should also be considered and professional advice sought, to ensure both insurers and policyholders understand the ramifications of any differences with the traditional regime.

Key takeaways for insurers

For insurers, the Willis solution demonstrates advantages, but with each opportunity there are risks that require management if disputes are to be avoided.

• Reaching previously uninsurable risks is a market opportunity, not a last resort: Where flood risk can be accurately modelled at site level, parametric triggers can be calibrated to price the risk sustainably. For brokers, this opens a conversation with clients who may have accepted uninsurability as a fixed constraint.
• Basis risk must be managed carefully: The core vulnerability of any parametric product is the possibility that a trigger is not activated despite a genuine loss occurring, or that a payout is made where damage is minimal. Site-specific sensor placement and clear policyholder communication about what the product does and does not cover are essential to minimise disputes.
• Speed of payment carries compliance implications: The automatic payout removes loss adjustment friction - but insurers should ensure the process is designed with Consumer Duty obligations in mind, particularly where smaller leisure businesses may not fully understand the limits of parametric cover at inception.
• Scalability depends on data quality: Replicating this model across football grounds, cricket clubs and hospitality venues will require consistent access to granular hydrological data. Investment in data infrastructure should not wait for demand to mature.
• Interaction with existing policies should be addressed explicitly: Where a policyholder holds both a parametric product and a conventional property policy, questions may arise over how a parametric payout is treated in any residual indemnity claim. This should be resolved clearly at placement.