Flood Insurance: Challenges to consider

Understanding the risk

Flooding can be devastating to both homes and businesses, causing huge amounts of physical damage as well as a high level of emotional impact from the flood recovery process. The Environment Agency has estimated that 2.4 million properties in England are currently at risk of river or coastal flooding, and there are an additional 3 million properties at risk of surface water flooding; 600,000 of these are at risk of both.

So, it’s important to understand the flood risk for your home or business, so you can be prepared. This includes considering how you can become more flood resilient and making sure you have adequate flood insurance.

The first place to go to learn more about flood risk is the Government website, www.gov.uk/check-flood-risk. From there, you can sign up to flood warnings. There is also good published guidance to understand more about flooding (e.g. National Flood Forum, Know your flood risk etc.).

But what about insurance?

Insurance can appear complicated and confusing, so I have outlined below some things to consider.

Homeowners

Although buying home insurance is a job most people do not look forward to doing, it is still very important. Here are some things to think about:

• Most people will go online to look for their insurance policy rather than go to a broker. Without that person to talk to, you need to make sure you compare policies and understand what cover is provided for flooding for the price (e.g. is there cover to improve flood resilience after a flood? What is the excess?)

• Make sure you think about the excess you must pay if you make a flood claim, not just the price

• If you get high quotes online or are in a high flood risk area, it is worth considering going to a specialist broker for advice

• If you have installed flood resilient measures, this will not be acknowledged by the on-line comparison sites, so best to go via a broker. The broker will make sure these important risk reduction measures are considered by your insurer

• You could lose most of your ground floor contents in a deep flood, so this is a really big risk. Make sure you understand your flood risk and protect yourself with enough cover.

Being resilient

If you are unfortunate enough to suffer a flood, then it’s really important to get advice on flood resilience. Flood resilience is taking steps to reduce the risk of damage to your home from a future flood and may be:

• Resistance (excluding or limit water entry), or

• Recoverability (minimising the damage when water enters).

This can’t be done effectively without first having a detailed understanding of you flood risk (for which you will need a specialist report) and employing an experienced professional (e.g. Chartered Building Surveyor specialising in flooding), who can provide advice on what measures may be suitable for you and your property. This is not that expensive, but essential if you want to protect your property and have peace of mind.

Businesses

As a business owner you will have many priorities and flood risk and insurance will inevitably be lower down that list, as you will be busy running your business. But it is important to consider insurance carefully, as research data shows 40% of SMEs do not re-open after a flood.

So, although the risk of a flood may be low, the consequences are so significant that mitigating your flood risk is something that must be considered. Here are some issues to think about:

• Consider in detail who is responsible for insurance and what cover is needed, given the possible impact of flooding. This is where the advice of an insurance broker is really valuable, but here are some factors to think about:

1. Are you the owner/leaseholder, who is responsible for insuring the building?
2. Who is insuring what, in terms of the building structure versus fit out?
3. What cover do you require for your stock and machinery?
4. What business interruption cover do you need?

• If you are in a high-risk area and the impact of a flood could be significant, insurers need to price your insurance accordingly and may even consider your risk too great to offer flood cover at all. As Flood Re (a Government backed scheme to help provide affordable flood insurance) does not cover all homes and does not cover business, being able to obtain cover is down to market forces. What do you do, faced with this situation?
• Seek advice from a specialist insurance broker who will talk you through the options and see what is available in the market.
• Create a risk sharing mechanism, which works for both you and your insurer. This could mean you take a higher excess which could reduce your premium. If you increase the resilience of your business, insurers should see you as a lower risk and give you better terms. You could consider a combination of making yourself more resilient to deal with low level floods and take out parametric flood insurance, (so you are paid a set amount when the flood reaches a pre-agreed height, but nothing below that level)
• The creation of a really effective, well documented, flood resilience strategy (including a flood plan on how you respond to a flood) should form the basis of the information provided to insurers, so you can demonstrate you are a lower risk.

There are practical measures you can take as a business to become more flood resilient and reduce your risk, which are not expensive. For example, re-organise displays/storage, so high cost items are not at low level, put your office on the mezzanine/first floor, train employees to respond to mitigate damage. All this should be included in your flood/business continuity plan.

There are of course changes to the building/services (which are more expensive), to reduce flood water entry or allow the building to recover more quickly.

It is important you get professional advice to walk you through the process and options to becoming more flood resilient, so you can decide what is best for you and that will also help get the best insurance terms

How is the insurance Industry responding to the challenges of flooding?

The insurance industry to trying to make a difference by reducing the emotional and financial impacts of flooding. Here are some ways it is trying to do this:

Creating Flood Re to help homeowners have access to affordable flood insurance

• This scheme was set up by the Government and insurance industry in 2016 to create a way to make flood insurance available and affordable for homeowners. You still go to your insurance company to get a quote for insurance and Flood Re works in the background to try to ensure you can get insurance at an affordable cost. For further details go to www.floodre.co.uk

Working with the DEFRA Flood Resilience Round Table

• This group was set up to find ways to encourage the uptake of effective flood resilience in England. The insurance industry wants homeowners and businesses to be better prepared and protected against flooding and being part of this group is really helping make this happen.

British Insurance Brokers Association (BIBA) Flood insurance scheme

• This scheme was set up to try to find a way for many businesses and let properties located in areas at high flood risk to get flood insurance cover.

New Products and Services

• There are new ideas coming to the market to help with the challenge of flooding, including:

• A small number of insurance companies who will pay to make your home more resilient to flooding after a flood claim
• You can now obtain parametric flood insurance which pays an agreed amount to you when flooding hits an agreed flood height, for a set cost
• You can buy specialist surface water flood risk warnings - these are much more detailed than the information available on free to use websites, so you can respond effectively.

The DEFRA Flood Resilience Round Table has lead the creation of the “How to Guide for Flood Resilience”, so if you are interested in finding out more about how to protect you home and business, see the following 3 documents:

• Making your property more flood resilient (summary for homeowners/ businesses)
• Flood Resilience Code of Practice (process to follow to improve resilience)
• Guidance on Code of Practice (detailed guidance for professionals)