Businesses could be left ‘high and dry’ due to underinsurance, as new study predicts rise in flood events

Businesses risk being left ‘high and dry’ if they are hit by flooding, as a new academic study predicts a surge in flood events in UK in the coming decades.

Business owners could be left to foot the bill for potentially huge costs because of exclusions or high excesses for flooding on their insurance policies.

The warning comes after new research from Heriot-Watt University revealed that the UK could see flood events increase by 15-35 per cent by 2080.

Flood risks are increasing, due largely to the effects of climate change and an increasing population – and this is only going to get worse and affect more and more businesses.

What many business owners do not realise is that although some protection can be provided for homeowners as part of the government’s Flood RE initiative, this does not apply to commercial businesses.

Many businesses are at risk of being left ‘high and dry’ and losing everything, if they haven’t arranged the right protection – and this problem is set to become more prevalent as flooding becomes more common and widespread.

You tend to find in flood-affected areas, after the first flood, insurers will raise the premium for flood cover, increase the flood excess or exclude flood risk altogether.

These businesses are left with few options – pay higher premiums, accept a significant excess or have no cover at all – in which case a contingency plan using vital funds is needed.

Insurance pay outs to help customers recover from 2020’s Storm Ciara and Dennis was initially estimated to top £360 million, according to Association of British Insurers (ABI).

The estimated total payout for flood claims came to £214 million, with commercial property flood claims making up £85 million of the total amount.

When floods hit Yorkshire and the Midlands in 2019, ABI predicted that the average flood claim was likely to be around £70,000 for a flooded business. This compares to an average claim across all insured risks of £11,500 on a commercial policy.

Affordability and availability of cover protecting against flooding has been a long-standing issue in the insurance market, driven by the high risk and high level of uncertainty associated with flooding events.

There are a number of ways that businesses can help reduce their premiums – firstly by making their property more flood resistant and resilient and secondly, by going down a less traditional insurance route.

There are a growing number of flood products that help to keep flood water out of the business premises, such as flood boards, flood proof doors or barriers, sandbags, and air-brick covers, which can be placed across openings when flooding is expected. Check for kite-marked products, which are usually favoured by insurers.

Measures to make the inside of the property more resilient to flood-water include sump pump systems, water compatible walls and floors, raised electrics, plinths for electrical goods, flood alarm systems, and careful storage of valuables.

A flood risk mitigation survey is also useful, as it can help businesses to determine what can be done to reduce exposure to flood damage, confirm that any existing flood measures have been fitted correctly by the installer, and, in turn, help reduce premiums.

There are also non-traditional insurance products coming to market, which can be a lifeline for businesses struggling to obtain insurance, for example, businesses who occupy or let out properties that lie on the floodplain.

Parametric insurance is a non-traditional insurance product that offers pre-specified payouts based upon a trigger event.  Payouts are set and based on flood water level, rather than damage, which can be extremely variable and unpredictable.

Once flood water reaches a certain depth, there is an automatic pay-out, and as the insurance payout is pre-agreed by policy holder and insurer, costs are kept at a minimum.  This cost saving is passed on to the business through lower premiums, there is no protracted legal wrangling or wait time for pay-outs, and businesses who could not afford or were refused cover due to repeat floods finally have a safety net and a sense of security.

Check your postcode on the government’s long-term flood risk service and sign up for free flood alerts.  If you are in an area that is flood exposed, you should think about putting a flood strategy in place and creating a flood resilience plan – and if in doubt about what you are covered for, seek specialist help.