The Implications of Flooding on Business InsuranceWednesday 5th February 2014
No business likes uncertainty. It makes planning and forecasting much more difficult and can undermine the ability of a business to take advantage of opportunities which come their way.
Unfortunately, as many businesses in Somerset are currently all too aware, there is no getting away from the fact there is a large degree of uncertainty concerning flood insurance for commercial premises.
Following the floods of 2000, the government and the Association of British Insurers (ABI) agreed to continue to provide flood insurance for domestic homes and small businesses. Although this Statement of Principles did not officially include commercial property, the insurance industry broadly continued to provide cover for its commercial clients.
This agreement ended last summer and the ABI and the government have been in talks for some time with a view to deciding the way forward. Last year an agreement was reached to set up a not-for-profit scheme known as Flood Re. Summer 2015 was the original launch date but it looks likely that this date will come and go as the scheme has yet to be finalised.
Regardless of the start date, businesses have every right to be concerned as the new scheme is restricted to domestic properties and farm houses. The government’s take on the exclusion of small businesses and commercial property is that there is currently insufficient evidence to justify their intervention in the markets provision of property insurance for small businesses.
Quite how they reached this conclusion is uncertain. What is certain is that thousands of businesses and commercial property owners suffer from flood damage each year. The British Insurance Brokers’ Association (BIBA) - of which Higos is a proud member - continues to lobby both the ABI and the government and it is our view that DEFRA must continue its long term investment in flood defences and that the new scheme must include provision for commercial property. In our view small businesses, sole traders, partnerships and limited companies with up to 10 staff and £1m turnover should be included as a minimum.
We are in a period of uncertainty until negotiations around Flood Re are concluded. We continue to support BIBA in their drive to have commercial premises included in Flood Re. In the meantime our view is that our client’s existing insurers are obliged to continue to provide flood cover even in instances where there has been a claim. We negotiate (successfully much more often than not) to ensure insurers honour this obligation.
Insurers approach to flood is becoming more sophisticated and several of the larger insurers have advanced geometric software, allowing them to underwrite on a property by property basis, so it is not a case of a whole postcode area suffering because a fraction of the area is more susceptible to flooding.
From an insurance point of view, it is becoming increasingly important that your business is protected by an insurance broker which has access to the widest market and is completely up to date with the flood issue.