Business Flood Insurance
According to Environment Agency data, there are currently around 185,000 commercial properties at risk of flooding in England and Wales. While the Flood Re scheme was launched for homeowners in April 2016, it wasn’t until December 2016 that the British Insurance Brokers’ Association (BIBA) announced a scheme for businesses. However, many business owners were still left frustrated at the lack of availability in affordable commercial flood insurance cover.
So, what options are available to those businesses that may be struggling to obtain cover or afford insurance premiums?
The British Insurance Brokers Association (BIBA) scheme for business flood cover is provided and managed by Randall and Quilter (R&Q) Commercial Risk Services, and uses advanced flood mapping data sets to provide a more defined location of a property in order to calculate its flood risk as accurately and fairly as possible. It also takes into consideration any flood resilience measures installed at the premises which may help to reduce premiums. The BIBA initiative is underwritten by Lloyds and designed to allow those ineligible for cover through Flood Re (such as businesses, most leasehold properties, let properties and charities) to obtain the level of cover they require. However, many businesses have reported that the premiums and excesses quoted under the scheme still remain too high and vastly out of reach.
You can read more about the scheme and find a broker online here.
Improving your businesses flood resilience!
Investing in property level flood alleviation measures could not only help to make flood cover accessible in the longer term, but it could also help to prevent your business from flooding or massively reduce the downtime and damage caused if it does – potentially making a claim unnecessary. According to Flood Assist Insurance, on average, every £1 spent on property level resilience provides a £5 saving on future damages. Demonstrating that a business is flood aware; registered to receive flood warnings and has an emergency flood plan in place, can make the provision of flood insurance cover a far more attractive proposition to insurers.
Tailored policy premium and excess values
Insurers may offer the option of a lower premium at the expense of a much higher excess, or vice versa. While this can help to make having flood risk cover on your policy more affordable, careful consideration should be given to the likelihood, severity and impact of a flood event on the business.
Understanding your flood risk and the recovery costs following a flood will help you to determine the best way forward, although the intangible costs, such as loss of earnings and custom, as well as financial liabilities through failure to fulfil contracts or orders, may be somewhat harder to quantify. Comprehensive business flood planning however can help to reduce these costs MASSIVLEY!
You can check your flood risk here.
Flood excess insurance
Often known as excess ‘buyback’ policies, excess insurance is an additional insurance premium which allows the policy holder to reduce the cost of the excess payable in the event of a claim on their primary policy. The value covered can vary under these products; however it is possible to find excess insurance cover up to the value of £100,000. These policies can be easily obtained online through third party companies and brokers, and while in some cases it may not cover the primary excess in full, it may just help to make obtaining flood insurance cover viable.
Parametric insurance, also known as ‘event based’ insurance, is designed to sit alongside your traditional policy. It shares the risk between the underwriter and the policy holder, and is priced through three main ‘parameters’:
- The policy holder determines the fixed settlement figure to be paid out in the event the policy is triggered (up to a maximum of £5million).
- They also determine the height the flood water must reach (trigger threshold) before a payout is made (minimum of 200mm depth).
- The third variable is the flood risk, which varies from site to site.
If the quote is too high, the customer can consider raising the trigger threshold or lowering the payout, or a mixture of both. Once these parameters are set and a premium is accepted, a flood water level sensor is installed on the external face of the premises, and when the flood water level reaches the trigger threshold, the policy triggers and pays out. The payout can be used for whatever the policy holder wishes, such as recovery costs, new equipment or staff wages.
There is also the option of a multi-trigger policy, as illustrated below. With this example a flood depth of 400mm would automatically trigger a payout of £20,000, but if the flood water continued to rise to 1m, an additional £100,000 would be paid out. This offers greater flexibility and can help to avoid missing out a payment altogether should the flood water fall just below 1m.
While this example policy above has a premium of £754.13, like-for-like cover may cost more or less depending on your particular level of flood risk.
With this type of policy it is essential to estimate the damage and recovery costs of a potential flood at varying depths of water, then decide on the most appropriate level to insure against. Usually, the greater the flood depth, the higher the recovery costs are likely to be e.g. structural damage or damage to stock, machinery etc. Carrying out this exercise will help to determine what level of flood water your business could potentially ‘self-recover’ from. Because a higher trigger depth equates to a lower premium for the settlement figure needed, a business can implement resistance or resilience measures at the premises to help raise the trigger threshold and lower the premium.
For further information or to find a broker, visit www.floodflash.co (not .com)
Flood cover may not always be worth the cost; especially for smaller businesses capable of funding their own recovery costs. The smaller and more predictable the loss, the more economical it may be for a business to self-insure.
Setting aside money otherwise spent on the flood risk element of a policy not only helps towards future recovery costs of a flood, but could also fund the cost of installing flood alleviation measures, such as flood barriers and other solutions.
For an overview of this information, download our ‘Business Flood Insurance’ resource from The Flood Hub here.
Sources: BIBA, FloodAssist, Simply Business, FloodFlash