Recent extreme weather events in the UK have affected thousands of businesses, many of whom are now struggling to find commercial insurance which will cover flood damage. Instead of declaring flooding as a fundamental risk covered by Government, the powers that be have adopted a King Canute approach and last week announced a further two billion pounds worth of flood and sea defense work.
Whilst the Insurance blog applauds the capital expenditure on public works which are much needed in the current economic environment, this does little to address the potential losses or help those small businesses who currently cannot get cover for water damage caused by flooding.
Types of Flood
Most regions of the UK are at risk of flood to some degree due to the propensity to site populations on river flood plains and coastal areas.
Floods in the UK are either inland, which is all in some way the result of precipitation, or coastal, which can be due to either precipitation or inundation.
There are likewise varying degrees of damage caused by floods from the small localized event to the large and catastrophic.
Most floods on inland areas in the UK are caused by rivers and run-off overflowing and bursting the available channels, following a long period of heavy rainfall on higher ground. A typical example of this type of flooding causing business damage is where the commercial property has been built on industrial estates on river floodplains such as occurred nationwide in the November floods of 2009 and on the River Don in Sheffield.
Sheffield incidentally is also the scene of the UK’s worst man-made flood disaster when the newly built Dale Dyke Dam broke as it was being filled for the first time in March 1864. An estimated 3 million cubic meters of water (700 million gallons) swept down the Loxley Valley joining the River Don in Sheffield Centre and on to Rotterdam, destroying 800 houses and businesses and killing 270 people.
Another type of inland flood risk is liquefaction, which is where groundwater rises following a period of rainfall, saturating and penetrating buildings and ground above areas where runoff is limited. A typical example of this occurs in villages and towns lying on the chalk aquifer of the North and South Downs where spring water regularly floods basements.
Coastal inundations are now more limited to extreme events due to four hundred years of construction of sea defenses, although coastal erosion and rising sea levels are now threatening some livelihoods. The most typical coastal flooding occurs when a heavy rain-bearing low-pressure cyclone coincides with high spring or neap tides as occurred in the North Sea. A total of 307 people were drowned along the East coast from Lincolnshire, Norfolk, and Suffolk to Essex.
The greatest loss of life and damage to property was in the Thames Estuary where the extreme weather system caused a storm surge and sent a wall of water up the river drowning nearly 40 people in Convey Island alone and leaving some 24,000 homeless and many businesses destroyed. This event led to the construction of the Thames Flood Barrier to protect London and the building of sea wall defenses all-around low lying ground.
Britain is not immune to Tsunamis either
In January 1607 a ten-meter wave believed to have been formed by movements in Atlantic plates swept up the Western approaches and funneled into the Bristol Channel. The resulting inundation led to the drowning of an estimated 2,000+ people, with 200 square miles (518 km2) of farmland inundated on the Somerset levels, leaving Glastonbury some twenty miles inland, as an island. The likely extent of the Bristol Channel tsunami inundation provided by the Environmental Flood Agency.
Drownings were recorded as far North as Worcester. Little wonder those protesting the current development of a new nuclear power station at Hinckley Point hold such fears after the recent Fukushima events.
Commercial Insurance Covers For Flood Risks
Whether your business will be able to purchase insurance to cover risks from flooding depends primarily upon the location of the business and the risk factor associated with the location as provided by the Environmental Agency Flood Risk Map. This Government data is used by insurance companies, along with known claims data to assess the risk of flood at any particular location and to either price the risk accordingly or reject it. If you are thinking of leasing or renting commercial property is advisable to check the flood map and previous occupiers insurance, before entering into any long term agreements.
A typical commercial property insurance policy will cover or exclude structural damage to buildings’ fixtures and fittings and machinery caused by floods. Many policies have separate property contents cover for loss of records, office equipment, and stock which may or may not be covered depending upon your situation and policy. If you operate in a flood risk area there may be certain policy limits applied which will not cover your potential losses, leaving you effectively under-insured.
Perhaps the greatest risk to a business enterprise from flooding comes in the form of business interruption. A business that has suffered serious flooding can sometimes take up to six months of de-humidification and a further six months of structural repairs before it can trade again. Other unforeseen factors such as the loss of bridges and infrastructure in a flood-affected region can seriously affect turnover, even if a business has not been directly flooded.
If your business has been or has the potential to be affected by floods you will find it difficult to obtain cover on the open market. There are however many small business insurance brokers that specialize in declined commercial risks and can offer competitive premiums through managing general agents at Lloyds. It will be interesting to see how many of these survive if the UK suffers regular extreme weather as has been experienced for the last five years.