If floodwaters outside a warehouse in Freeport, Texas, owned by private investment firm Postlane Partners rise to 8 inches, an internet-connected sensor will trigger an automatic $3 million payment from an insurance company, a startup called FloodFlash. If the waters rise to 16 inches, the payment will also rise—to $5 million.  

This type of policy, called parametric insurance, works like a bet. It has a defined payout, which limits the liability of the insurer. And it comes from a new breed of insurance company, stepping in to shoulder risks that traditional insurers can’t—or won’t—take on, because climate change has made more typical kinds of coverage unprofitable.