What would be historical colonial flags though? They largely used the flags of their home nations.
Kind of a construction kit for colonial flags based on elements of historical nations. The game would randomly pick one of the elements of home nation and one of standard variables. For example:
Sweden - 5 components from the home nation - blue background, three crones (middle), three crownes (small, left upper corner), three crownes in a heraldic shield (middle), three crownes in a heraldic shield (small, left upper corner)
UK - 5 components - St. Andrew cross, St. Georg cross, british flag in a heraldic shield (middle), british flag in a heraldic shield (small, left upper corner), british flag (small, left upper corner)
Same for all other nations. Then the game pick randomly one of these elements and combines it with one or two standard elements from a base sample like black/blue/red... background, 2/3/4/5 stars in the middle/left corner, square/circle in the middle/corner, a red/blue/white ... stripe on the left/right/upper/down side etc.
The mechanic would be even extended to a standard procedure for a world part once the home nation components was chosen. For example for the first colonial nation of Sweden in Americas three crownes in a heraldic shield in the left upper corner with red background (1st standard element) and St.Georg cross in the middle (2nd element) were picked by EUIV. Any other colony in America would have these 3 crones in the corner with however different standard elements. In the next game, also playing Sweden, the home nations element could be three crowns in the middle picked with black background (1st standard element) and a white circle in the middle around the crownes (2nd element). So afterwards in this playthrough all Swedish colonies would have three crownes in the middle combined however with different stadard elements.