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9 December 2015

Flood Risk - Don't let your business get swamped if the heavens open

Flood Risk - Don't let your business get swamped if the heavens open
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Storm water is heavy: each cubic foot weighs around 63lbs1 and it’s fast, running at anything between six and 12 miles per hour2. In full spate, it is relentlessly destructive and unpredictable. At rest, it is often an unpleasant pollutant that’s expensive to clean up.

The figures speak for themselves; average UK insured losses were £343 million in 20113 and average annual flood damage across the UK currently runs at around £1.1 billion4 - bigger than the yearly budget of the Environment Agency. Risk is escalating with current estimates indicating a potential rise to annual damage totals of £27 billion a year by 20805. Today, around 300,000 business premises6 are at risk of flooding in England alone. To cap it off, friction remains between insurers and government regarding the maintenance of flood defences.

While it’s up to the politicians to manage how best to deal with the problem, it’s down to you to manage an immediate risk that at best will hamper your business and at worst, stop it in its tracks. Whether it’s a long wet summer with sustained rain that drowns drainage systems - or a long dry one with sudden storm downpour that simply overwhelms drainage or river defences - the result is the same: disruption and damage.

The solution is two-fold: pre-event analysis and the preventative actions you can take to reduce the impact on your business should the worst happen. The right insurance policies from a broker expert in water risk management can make all the difference.

When water gets out of order…

On the coast: extreme weather combined with high tides force seawater through coastal defences to swamp the hinterland.

Riverine: 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 or storm: caused by sudden overwhelming heavy rain, failed flood defences or insufficient drainage – or all three.

Groundwater: a sustained rise in the water table, usually caused by prolonged rain - it can hang about for weeks or months and already affects hundreds of thousands of UK properties. Remember: a change in the water table level is typically a standard exclusion for commercial property insurance policies.

Surface water: caused by heavy and direct rainfall failing to drain away from contact with the land.

Sewerage: caused where drainage systems lack the capacity to handle heavy rain and flooding - or simply fail.

A thorough approach to water damage makes good business sense…

Water risk is insured as a standard component of property insurance in the UK - this is not the case elsewhere in the world - but it’s up to the underwriter whether or not to provide a quote. Why? It’s been traditionally unattractive to Insurers as it is ‘spiky’: incidents are few but usually expensive, not only making it difficult to price but also meaning they may need to buy extra reinsurance. Also not all insurers feel comfortable with providing the emergency response needed in the event of a flood. And if your premises are in a known flood zone, it may be tough to get insurance at all.

That having been said, it’s not all doom and gloom. Over the past decade insurer attitudes to water risk have changed as they have more useful data available to them now and understand the risk better. This has led to highly differentiated pricing between ‘good’ and ‘bad’ risks - either good or bad news depending on which category you are in.

Building a thorough approach to water risk management: Top Tips

There are a number of ways you can mitigate its impact on your business. We outline them for you here.

  • Forewarned is forearmed: couple proactive physical measures to reduce flood risk with commercial property usage to arm your broker with evidence that your insurer should offer terms - or even improve your existing ones. Could your insurance be working harder and could you be paying less?
  • Don’t make assumptions: if you don’t have a good picture of your flood risk, don’t assume your insurance company or commercial landlord does. Ignorance isn’t commercial bliss.
  • Be informed: investigate the main flood categories, know which ones might affect your location, understand the likely frequency and depth of flooding your premises may experience by researching past records.
  • Seek out expert advice: your broker is the critical link between your business and the insurer. Don’t be afraid to pressure-test your broking partner: make sure they understand flood risk and can advise you on effective mitigation with skill and in detail - plus are willing to fight the premium and terms corner with your insurer.

In short, expertise - and expert advice - can make all the difference to your terms, your premium and your business peace of mind. Make sure you can access the right water risk management resources.

The practical physical measures you can take today…

Understanding the topography of water risk management is one thing, but what are the practical steps you can take straight away? Here we outline the physical actions that can help cut your risk exposure.

  • Plant and machinery: can you raise it above known flood water levels - or even positioned on a roof?
  • Early warning: if your business is in a high-risk area then check the Environment Agency web site in England & Wales or the Scottish Environment Protection Agency (SEPA) in Scotland to check for flood warnings. You can also sign up for the flood support service, Floodline Warnings Direct, which will alert you if you are in imminent risk of flooding. Call 0845 988 1188 for details.
  • Sandbags: do you have storage space for ready-prepared sandbags?
  • Drainage: keep drains and gutters free of debris and other blockages with regular maintenance.
  • Obstacles: keep the roof or any terrace areas free of all vegetation that could damage the roof and let in rain or snowmelt.
  • Scoping: commission a Flood Assessment Survey to set your baseline knowledge of the risks.
  • History: if you’re based in a high-risk area, check public records to help set your expectations. Check the water risk history of your premises.
  • Water supply: check the plumbing of all equipment or infrastructure use a water supply - from washrooms to vending machines.
  • Sprinkler systems: minimise the risk of leakage with regular, thorough and manufacturer-approved maintenance processes.

Don’t forget the BI indemnity period!

The worse the damage, the more important the business interruption indemnity period becomes. This is the length of time your BI 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 - and it must last until you’re back in business. 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.

So - what indemnity period broadly suits which type of business?

12 Months - simple retail or office-based/no special internal specifications

  • Suits: firms that can easily re-locate to new premises as they do not own the premises they occupy and do not have special kit-out requirements.
  • Avoid: manufacturers, operations with complicated internal kit arrangements or firms in green belt areas where planning permission will be complex and involved.

18 Months - retail or office-based/modest internal specifications

  • Suits: organisations that can easily relocate to new premises and have modest internal specification requirements
  • Avoid: manufacturing operations with complicated internal specifications or firms that need to rebuild in green belt areas.

24 Months plus - complex retail or office-based and simple manufacturing/infrastructure

  • Suits: retail firms or office-based with complicated internal specification requirements or affected by green belt issues. Also good for manufacturers with simple processes and without key plant to be sourced, delivered and commissioned.
  • Avoid: manufacturers with complicated processes or key plant that is difficult to source or that takes time to commission.

36 Months plus - complex premises with complex manufacturing/infrastructure

  • Suits: firms that lease property to third parties - whether individuals or organisations - on a Loss of Rent Receivable insured basis. Also suits manufacturers and supply chain businesses with complicated processes and where key plant or assets are neither readily available nor replaceable. Also suits businesses facing the toughest and most complex green belt issues.

Our advice:

  • It may be you need more than 36 months; don’t be afraid to push your broker. It’s worthwhile building in some slack.
  • Always ensure that your indemnity period gives you the time to rebuild and relaunch with confidence and flexibility.
Arthur J. Gallagher: planning ahead is your best defence…

Water risk is arguably worse than fire. You only have to look at the extreme Somerset Levels event of 2013/14 - the waters remained high for weeks before repairs and restoration could begin. So, plan ahead. Assess your exposure then explore all available physical defences you can put in place on-site. Work with us to plan your physical response and put in place an appropriate business interruption/disaster recovery policy with an indemnity period that gives you the time your business needs to rebuild.

Remember: the more preventative steps you can take to lessen the impact of water damage, the better able you will be to secure the comprehensive cover you need. Lastly: check those policy exclusions!

1 FEMA, US Government, Protecting Utilities from Flood Damage FEMA P-348, Edition 1, 1999 Section 3-2.11
2 Pacific Disaster Center –, Natural Hazards, 2012
3 Insurance Journal, November 28, 2012: source: AIR Worldwide
4-6 Flood Defence, Parliamentary Notes,, 2012

Download the Flood Risk Insurance Guide.pdf

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