Key Challenges for the Region
Growing Flood Risk for US Data Centers: Flash flooding is an increasing threat to data centers in the US, particularly in regions exposed to intense rainfall events. Even without major structural damage, water ingress can disrupt cooling systems, power distribution, and network availability.
Operational and Financial Exposure: Flood-related disruptions can lead to Non-Damage Business Interruption (NDBI), triggering costly SLA penalties for colocation operators and their tenants.
Limits of Traditional Insurance: Traditional property insurance programs often struggle to respond effectively to rapid-onset flood events due to high deductibles, limited flood sub-limits, and exclusions for business interruption losses.
Key Benefits of Parametric Insurance for Flood Risk
Clear, Objective Triggers
Parametric flood coverage relies on measurable physical parameters, such as flood depth recorded directly at the insured location, eliminating ambiguity at claim time.
Fast Access to Liquidity
Once predefined thresholds are met, payouts are triggered without the need for physical loss assessment, enabling rapid financial response.
Coverage Aligned with NDBI Losses
Parametric insurance can respond to interruption losses even when physical damage is limited or absent.
Flexible Use of Funds
Payouts can be used to address any direct or indirect financial impact, including SLA penalties, operational recovery costs, and emergency expenses.
Descartes’ Parametric Flood Insurance: Flood-at-Location Coverage
Descartes’ flood-at-location solution uses on-site sensor technology to measure exact water depth at the insured data center. This site-specific approach ensures that payouts reflect the real impact of a flood event on operations rather than relying on regional proxies or post-event loss assessments.
case study example
Flood Risk at a Northern Virginia Data Center: A Site-Specific Solution
A colocation data center in Northern Virginia experienced a flood-related disruption that highlighted the limitations of its traditional insurance program.
Problem
In July 2025, intense rainfall overwhelmed local drainage systems, forcing the shutdown of cooling and electricity distribution at the facility. While physical damage was limited, the disruption triggered Non-Damage Business Interruption and SLA penalties for multiple tenants.
The property insurance program carried a large flood deductible and offered slow, limited recovery for an event characterised by rapid onset, minor physical losses, and significant interruption costs. This left the operator financially exposed.
Solution
Descartes implemented a parametric flood-at-location cover using on-site sensors to continuously monitor water depth. Predefined payout thresholds were agreed in advance, ensuring immediate clarity once a triggering flood level was reached.
Result
Under the parametric structure:
- If flood depth reached 36 inches, the client would receive a $60M payout, representing 100% of the insured location limit.
- Funds would be available rapidly, supporting operational continuity, SLA obligations, and financial stability without waiting for a traditional claims process.
This structure directly addressed the protection gap for rapid-onset flood events and NDBI losses.
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