28 September 2017Is your business a flood risk?
Water damage is equally, if not more, destructive than fire damage. It can interrupt trading and require a costly clean up, resulting in a significant loss to your business. With winter drawing closer and the weather shifting towards rain and snow, now is the time to review your flood prevention and protection strategies.
Flood damage in the headlines
Recent headlines include the torrential flooding in Wales1 this summer which affected schools, hospitals and roads and the flash floods in Cornwall which caused more than £1 million of damage across more than 50 properties.2
This mass damage is typical of flooding, with ABI’s 2016 statistics showing that emergency payments of £24 million were made that year with the total pay out reaching around £1.3 billion. The average domestic flood claim was £50,000 in 2015 compared to £31,000 in 2013/14. With floods of this magnitude occurring nearly every year, it is important to assess how at risk your business is and take adequate steps to protect yourself.
The different ways floods can strike
While heavy downpour is one way that flooding can occur, it’s not the only way. Here are some of the more common ways that floods can strike in the UK.
Coastal: extreme weather combined with high tides force seawater through coastal defences causing flooding
Burst banks: more common than coastal breach, rivers burst their banks due to prolonged heavy rain, substantial snowmelt or a blockage to the free flow of water.
Flash flooding or storm damage: caused by sudden overwhelming heavy rain, failed flood defences or insufficient drainage – or a combination all three.
Groundwater: a sustained rise in the water level usually caused by prolonged rain - it can last for weeks or months, affecting hundreds of thousands of UK properties. Flooding caused by this is typically excluded from commercial property insurance cover.
Surface water: caused by heavy and direct rainfall failing to drain away
Sewerage: caused where drainage systems lack the capacity to handle heavy rain and flooding - or simply back up.
Flood preparedness checklist
While it may be near impossible to anticipate when a flood will strike, there are steps that you can take to prepare your business.
- If your business is in a high-risk area then check the Environment Agency website in England & Wales or the Scottish Environment Protection Agency (SEPA) in Scotland for flood warnings.
- Keep sandbags in a storage area, ready to be used if flooding occurs.
- Keep drains and gutters free of debris and other blockages with regular maintenance.
- Commission a Flood Assessment Survey to fully assess your risks.
- If you’re based in a high-risk area, check public records to see how often your area is affected. Be sure to check the water risk history of your premises.
- Check the plumbing of all equipment or infrastructure which uses a water supply – from washrooms to vending machines.
Prepare a flood risk plan
As well as the correct cover, if your business is located in a high-risk area then a tried and tested flood response plan is also essential should a flooding incident occur. Providing your broker and insurer with a thoroughly prepared water risk response plan helps demonstrate you appreciate the risk and can respond effectively. It may also enhance your risk profile for a potentially lower premium and may also be a deciding factor in securing your cover in a marginal situation. A flood plan should include the following steps:
- Check your existing property cover for exclusions
- Listen to the weather forecasts daily or set up a severe weather warning so that you can prepare for flooding
- Have an evacuation plan and test it regularly – just like you would with a fire drill
- Allocate flood responsibilities such as turning off the electricity, alerting your insurer and speaking to customers and suppliers, making sure you know who is responsible for what
- Document your supply chain including critical vendors, contractors, partners, suppliers and customers
- Document your key equipment or machinery and identify contingency replacements
- Document your key information including finance, legal, banking, HR and insurance files
- Back-up your computer data and systems and store them off-site
- Make a contingency plan including alternative office locations and emergency communications such as a switch to mobile phones
- Communicate and test the plan so that everyone knows what to do and when.
- Annually review the plan and revise it where it is no longer relevant
Business interruption cover – helping you get back on your feet
While your commercial property insurance will take care of the physical damage to premises you may experience during a flood (as long as the property insurer admits liability), it doesn’t take care of the subsequent financial consequences to your business operations. You will need to protect your staff, products and stock while dealing with the impact that business interruption will have on your income, profits and supply chain. Business interruption or a disaster recovery policy could be a lifeline in this situation by financing the road back from incident to recovery without incurring losses that could compromise your business. You should make sure you choose the correct business interruption indemnity period. This is the length of time your Business Interruption cover pays out across fixed costs, payroll, lost revenue, redundancy payments, profit set aside for investment as well as the time it takes to replace or repair plant and rebuild structures. The worse the damage, the more important the business interruption indemnity period becomes, while 12 months may be fine for a simple office set-up or shop, it won’t be for say a factory or printing business.
Working with your insurer to reduce flood risk
If you don’t have a good picture of your flood risk then you can’t assume your insurance company or landlord does. Instead, you should investigate the main flood categories, know which ones might affect your location and understand the likely frequency and depth of flooding your premises may experience by researching past records. You should take the proactive measures listed above, arming your broker with evidence that you understand your risks, potentially improving the terms of your insurance policy. Finally, you should ensure that your broker understands your flood risk and can advise you on effective mitigation, as they are the critical link between your business and your insurer. They should be willing to fight for the best premium and terms with your insurer.
Flood risk and insurers
While water risk in the UK is a standard component of property insurance, this is not the case in the rest of the world where underwriters can choose whether or not to quote. This is because while incidents are few they are usually expensive, making them an unattractive prospect to insurers. Plus, not all insurers are able to provide the emergence response needed in the event of a flood.
Despite these reservations, over the past few years insurer attitudes have changed as readily available data allows them to better understand the risks available. This has led to highly differentiated pricing between ‘good’ and ‘bad’ risks which can be either good or bad news depending on which category you are in.
It can be tough to predict when a flood will strike. Water damage can cripple your business resulting in costly pay outs. As a result, it isn’t always easy to find an insurer willing to take on the risk of water damage, which is why it’s important to understand the risks your business faces and have both protective measures and an effective flood risk plan in place. The better you understand your risk, the better terms you can secure for your business. It’s not just about insuring your business against the cost of water damage, you should also have business interruption cover in place so that if your operations come to a standstill your bottom line will not be impacted. You should make sure you have the correct indemnity period for your business to rebuild.
Download the Flood Risk Bulletin