With the increasingly unpredictable weather brought about by climate change, it is unsurprising that flooding is hitting the headlines more often. Flash flooding, intense storms and extreme weather patterns are all on the rise1.
The consequences of a flood
Even if the correct insurance is in place, a flood event can have crippling effects on an investment portfolio. Disruption can include loss of rental income, reduced access or denial of access to premises, tenants’ stock damage and loss, and extensive repairs to buildings. In addition, due to the reduced risk appetite for flood insurance, insurers may opt to exclude high-risk assets entirely - and those who do offer coverage will often do so at a high cost.
Insurers are generally not keen to write standalone flood business as they are more likely to experience major losses. As a result, they will often impose a large burden of proof on the insured or request large amounts of detailed risk information specific to flood risk (i.e. historical water level/flood data for the location), special risk mitigations in place as well as reports before confirming cover.
1. Weather risk modelling across your portfolio:
During 2015/16, severe flooding led to over 300,000 commercial properties being put at risk2. These businesses may have minimised their exposure to loss by implementing more advanced risk management procedures and planning. Gallagher has access to leading mapping technologies, which can assess the flood risk across your portfolio and help you to avoid a potential flood crisis. These tools include geocoding, national catastrophe analysis, Gallagher flood modelling capability, flood analysis, subsidence hazards, and storm surge recognition. We can perform an in-depth analysis on your postcodes to highlight your proximity to flood zones, riverbanks or storm surge points.
2. Risk Management
Gallagher can use this information not only to offer practical tips to reduce flood risk but also to put you and your portfolio in a better position when seeking to differentiate your risk profile with potential insurers, and the market in general. Our risk survey team identify and quantify our clients’ exposure to flood risks and help them increase their flood resistance and exposures. Not only can these measures help to reduce risk, they may even assist in persuading insurers to reduce premiums and excesses, as your portfolio will become a more attractive one to the wider insurance market.
Gallagher will also assist with any flood contingency plans if there are any operational risks in your portfolio, as it is the case with the hospitality sector.
3. Preventative measures:
Preventative measures in order to reduce or alleviate the impact of flooding may include:
- Raising the floor level above predicted level of flooding,
- Reposition of property layout, such as raising the plant room above predicted flood level,
- Flood prevention to surrounding land such as; additional drainage or the introduction of trenches,
- Physical defences such as floodgates and sandbags, hurricane glass windows, storm shutters, air bricks, return valves, and/or waterproof coating.
These measures can significantly reduce financial loss and can assist in limiting damage to your tenants’ property, stock and equipment.
4. Insuring for Financial Loss:
Once high risk properties have been pinpointed, analysed and managed, the insurance policy needs to be structured in such a way that enables you to get your property back up and tenanted again as soon as possible after the loss. The following covers will need to be in place in order to ensure financial losses are measured and covered:
- Property damage – To cover costs associated with water removal, drying out, and physical repair to all affected areas.
- Loss of rent - Loss of income as a result of the premises not being habitable.
- Alternative accommodation – Costs associated with the tenant utilising temporary accommodation especially in residential Real Estate.
- Cost of re-letting the property – For costs associated with tenants that have terminated/not renewed their lease as a result of damage.
- Prevention of access – Within 5 miles of the boundary of the premises which physically prevents or restricts access to or use of the premises.
- Loss of Investment Income - Insurers will pay a further amount representing the investment interest lost to the Insured during the delay period.
- Flood resilience expenses - The insurance extends to include additional rebuilding costs incurred for the incorporation of flood resilience materials following Damage by flood.
5. What if insurer(s) still do not want to accept the risk?
If the risk is still too hazardous for a standard insurer to place cover, then Gallagher has multiple flood solutions for complex, high risk and or high exposure businesses. Our specialist London-based team can use their connections, including Gallagher Re, our reinsurance broking division, to help secure the correct level of cover for your business even if this means a higher excess and other conditions put in place. Furthermore, the team has access to schemes designed to specifically fill the gap created by a large flood excess, for a small additional premium.
Conclusion
Whilst the risk of flood is on the rise, so are the number of mitigation tactics one can employ to ensure the risk is either effectively reduced or transferred to a third party. The insurance market is constantly evolving and creating solutions to address the ever-changing risk landscape.
1. https://www.metoffice.gov.uk/research/climate/understanding-climate/uk-extreme-events-_heavy-rainfall-and-floods
2. https://www.knowyourfloodrisk.co.uk/sites/default/files/FloodGuide_ForBusinesses.pdf
