According to the Environment Agency’s last published flooding risk and impact analysis (December 2019), 5.2 million homes, in England alone, are at risk of flooding. (1) Thankfully, many built before 2009, can access subsidised flood insurance under the 2016 Flood Re scheme, running to 2039. (2)
For the one-in-six commercial properties similarly classed as at-risk from flooding, (3) there is no such support. Many have to accept high flood insurance excesses or take out insurance with no flood cover. The Federation of Small Businesses suggests many small businesses, with premises on floodplains, lack flood insurance protection and are exposed.
Whether businesses face a financial hit through a high excess, or through having to completely finance refurbishments and pay for all equipment and other losses themselves, flood can bring true misery.
Things are unlikely to improve. The Environment Agency says the number of properties on floodplains is likely to double to 4.6m within 50 years and predicts a 59% increase in UK rainfall by 2050.
Businesses should assess their flood risk – whether from sea, river, surface water or groundwater – and be cautious in bad weather. Checking with a Government flood-warning service, (4) will show whether quick anti-flood measures, such as moving equipment and goods, are necessary. Businesses should also fully appreciate their insurance policy’s flood terms and excesses.
Those struggling to buy flood insurance, or who have tough excesses and exclusions because of their at-risk location or history of flooding, could consider a new insurance lifeline – parametric insurance. Unlike traditional insurance, this works via pre-set triggers, which automatically lead to a pay-out, if met. For flood policies, the trigger is the depth of water entering the property.
Technology underpins this insurance. An internet-connected sensor, fitted to the insured property, assesses when the water has reached trigger level and wirelessly communicates that, to generate a swift, excess-free pay-out. Loss adjuster visits and lengthy claim negotiations are not required.
The business selects its own trigger depth and pay-out value, according to its own circumstances. Its pay-out sum should be based on the cost of getting things back to their pre-loss condition and the additional expenses and income losses incurred.
Any business struggling with its flood insurance cover because of its location, should find this attractive. It is vital, however, to set realistic triggers and a sensible pay-out level, which is then regularly reviewed. When doing this, the business should consider aspects such as building repairs, drying-out costs, surveyors’ fees and site clearance. However, other costs must similarly be considered, including damaged stock, possibly continuing to pay wages whilst closed, lost revenue, rehousing costs, long-term interruption and reputational damage. Working with their broker, a business should get this right.
Two-in-five SMEs never reopen after a catastrophic flooding, but a swift pay-out and embarkation on a recovery plan, could significantly enhance the chances of business continuity.
If face a flooding risk, speak to a broker and assess your options. Having the right strategy in place, including insurance, could just keep your business afloat.