Nick Pacifico has been working at his family’s Cadillac dealership in Denver since 2003. He’s never seen insurance costs this bad. “Getting coverage is nearly impossible,” said Pacifico, vice president at Rickenbaugh Automotive Group. Two years ago he paid about $160,000 to insure $20 million worth of Cadillacs and Volvos on his lot, where about a third of the inventory is kept outside. This year he’s paying almost $600,000.

Pacifico is not the only one. Hail is wreaking havoc in the market for auto dealer lot insurance. In 2018, Zurich North America, one of the major commercial auto insurance providers, decided not to renew policies with hundreds of dealerships throughout the middle of the U.S., citing “catastrophic” losses due to hail damage. (In a statement, Zurich said it remains one of the largest providers for auto dealers, including those in hail-prone states.) “Everybody that I know is faced with a very expensive change,” said David Ditgen, who worked at Zurich for 15 years and is now a broker at AutoRisk Dealer Financial Services in Denver.

Understory, a weather-tech startup in Madison, Wisconsin, has a plan to bring down costs and offer dealers a lifeline, according to co-founder and Chief Executive Officer Alex Kubicek. The company was to announce on Tuesday that it will begin selling Hail Safe, an insurance policy for auto dealers that uses on-the-ground data. Understory makes a small weather station called a “dot” that can measure hail in minute detail. Dealers who purchase Hail Safe will install a dot on their lot and pay an annual premium, then receive an automatic payout if the sensor detects a hailstorm that meets an agreed-upon threshold. The payout happens regardless of actual damage.

“It’s not like a typical loss, where you have adjusters come out and they have to assess damage,” said Ditgen, one of the brokers Understory has enlisted to sell Hail Safe to dealers. “If the weather station says it happened, it happened, and they get their money in a matter of two weeks.”

Such data-driven coverage, known as parametric insurance, has become increasingly popular in recent years—especially for the agriculture industry, as climate change has made it more difficult to predict weather damage. “Insure tech is a huge, growing thing,” said Paul Newsome, an insurance analyst at Sandler O’Neill. “There are hundreds and hundreds of these experiments happening right now.”

Over the past decade, hail damage to vehicles, buildings and crops has accounted for an average of almost $10 billion annually, according to Steve Bowen, meteorologist and head of catastrophe insight for Aon Plc. Those costs are growing, he said, because hail reports are becoming more frequent, and more people and property are moving into hail-prone areas. “We’re talking more ‘stuff’ being placed in some of the most vulnerable areas for hail risk, cities such as Dallas or Denver,” Bowen said.

Hail falls most frequently in a band that runs north to south through the middle of the country on the eastern side of the Rocky Mountains. The so-called hail belt or hail alley includes Colorado, Nebraska, Kansas, Oklahoma and Texas. Last year there were 4,610 large hailstorms (with stones at least an inch in diameter) nationwide, down from 6,045 the year before, according to the National Oceanic and Atmospheric Administration. The frequency, intensity and distribution of storms varies widely from year to year. And the impact is highly local. A storm that unleashes havoc in one place might leave cars undamaged half a mile away. This creates a problem for insurance underwriters, who typically use historical patterns to set prices. Add climate change to the equation, and the uncertainty can result in prohibitively expensive policies.

Pacifico has been lucky at his Denver lot—he’s had only one hail damage claim in his 16 years on the job. But that hasn’t saved him from the escalating costs in the region. “For about three years in a row, we had pretty serious hail events,” he said. Pacifico and other members of the Colorado Automobile Dealers Association have held meetings to discuss how to adapt. Many are choosing to install canopy systems that provide protection from hailstorms, at least when they’re not blowing sideways, and Pacifico said he’s looking into one.

AutoRisk’s Ditgen said Hail Safe could be a compelling alternative. Dealers can pare back their open-lot policies to bare bones, saving on premiums and taking on greater risk, then rely on Understory to hedge against that risk. “It’s a supplemental coverage that will protect them from a catastrophic event,” Ditgen said. Understory declined to discuss pricing, other than to say that it would vary by location and that it’s cheaper than what’s available on the market. To succeed, it will have to be. “We’d definitely look into it,” said Pacifico. “We’re trying to look at all options to mitigate our costs.”

Kubicek, who founded Understory along with fellow University of Wisconsin alum Bryan Dow in 2012, said the idea for the company grew out of his master’s degree studies in atmospheric science. He found that most weather data tracks conditions in the sky. “That only really tells you if you need a sweater or an umbrella or if you need to take cover,” Kubicek said. “It’s not anything that businesses can use to understand exactly how they are being impacted by the weather.” Understory set out to build a cheap, sturdy sensor that could provide detailed weather data at ground level.

Each dot sensor is an 8-inch stainless-steel ball set atop a slim pole that connects to a cylinder of hardware casing. The entire device is about 2 feet tall. As hail, rain or wind strikes the ball, it moves, recording every tiny wiggle. Kubicek said one of Understory’s designers dubbed it “God’s joystick.” The solar-powered unit takes 125,000 measurements per second, including temperature, air pressure and humidity. From its movement, Understory can extrapolate the size, speed and frequency of the frozen pellets in a hailstorm.

Kubicek said the company now has a network of almost 700 dots installed in the U.S., South America and Europe. About 150 of those are in the Dallas-Fort Worth area, where it paid to install them at strip malls, offices, schools and churches to begin building its database. In the five years since it began installing dots, Understory has collected data on 300 hailstorms and 40,000 hailstones. The largest to date was the size of a baseball.

The company has also been shooting car hoods pulled from a Kia Optima and a Chevy Malibu with a “hail gun” at its headquarters in Madison to calculate how the size and speed of hail correlates with damage. Understory combines its weather data with these lab results to estimate the likelihood and cost of hailstorms. “Filling this data gap gives us a much better view of the risk,” Kubicek said. “We know when the auto is going to be dented from the storm.”

Kubicek anticipates that climate change will continue to throw insurance markets into disarray. “This is going to keep happening in other parts of the world,” he said. Understory aims to expand from Hail Safe with similar plans for agriculture and commercial buildings. The company has raised about $25 million from investors including True Ventures and Future Shape, where former Apple Inc. engineer and Nest Labs Inc. co-founder Tony Fadell is a principal.

Fadell, who’s long been interested in outdoor weather sensors as a possible companion for Nest’s internet-connected thermostats, said Understory has the cheapest, most robust platform he’s seen. Hail Safe, he said, is only the beginning for potential insurance policies based on its data. “These are valuable products that people need to preserve their businesses in the face of climate change.”