We wrote last week about Flood Re, the new agreement for affordable flood insurance, and how it’s too late for many people – but that it won’t cover commercial insurance anyway. This is put into perspective by recent news about the damage done to UK businesses by the recent storms.
It seems that the floods of December and January have hit businesses very hard. According to PricewaterhouseCoopers, commercial insurance claims typically make up approximately 10 to 30 per cent of the total insured loss claim. But it seems that commercial claims resulting from storms Eva and Desmond alone will make up about 50 per cent of the total insurance claims.
This is explained by the fact that cities and towns were so badly hit, and according to our people on the ground there has also been a significant number of industrial estates built near rivers which have been affected.
PWC warns that this is likely to be reflected in rates increases when businesses renew their insurance – by as much as 100 per cent in some cases. And this isn’t the only financial hit some of these businesses are likely to suffer: the storms will almost certainly deter visitors, hitting revenue from tourism which is a vital part of the local economy in some of these areas.
Advice to businesses includes increasing their resilience against floods which may in turn reduce their insurance premium: for example by putting up flood barriers, having access to pumps, using alternatives to carpets, having sockets high on walls and using waterproof plaster.
But all of this is likely to add further fuel to the demand for Flood Re to be extended to cover small businesses.
It’s been a little frustrating over the last few weeks to hear on the radio or TV, time and again, discussions over Flood Re. This is something we’ve been writing about for the last four years, but it has received very little headline coverage in the national media – until now. And the key reason it’s suddenly being talked about is that, because it’s taken such a long time to implement, there are now people hit by the recent floods who are not covered by insurance.
The Daily Mail wrote recently about flood victims who hadn’t been able to afford insurance – or were refused it completely – because they live in flood-risk areas. They cited one householder whose annual insurance premium rose from £375 to £3000, and another which rose from £100 to £5000. Both decided not to pay these huge hikes and were left uncovered – and now they face a huge personal bill for reinstating their homes.
Flood Re is the result of four years of negotiations between the government and insurers. This was prompted by the ending of the previous agreement through which insurers provided flood insurance for high-risk properties in return for extra state investment in flood defences. The agreement ran out in 2009 and since then there’s been a tortuous and extremely lengthy process to reach a new deal. It looked at one point as if it would be implemented last year, but after numerous delays it finally goes live this April. For many this is too late.
And even when it’s implemented, Flood Re isn’t comprehensive in its scope. In particular, it doesn’t cover businesses, and the recent flooding in the north of the country has hit a huge number of small businesses.
When asked about this, a spokesman from the Association of British Insurers was quoted in the Guardian recently as saying: “We have not been presented with any evidence of large-scale problems in the commercial sector. Most businesses should be able to arrange competitively priced flood insurance through a broker.” But there have been numerous examples of businesses hit by the floods who face a significant financial impact, with accountants KPMG saying that ‘many businesses will have insufficient insurance to cover the damages’ (SME Insider).
There are now even more calls to reconsider and to extend Flood Re to cover small businesses, and the Chief Executive of Flood Re has offered a glimmer of hope when he apparently conceded that it is ‘self-evident’ that businesses are suffering in the wake of the recent flooding.
So on it goes. We will, as always, keep you posted on any developments.
So, we really are nearly there now. Last week, the final piece of the jigsaw for Flood Re fell into place, with the signing of the regulations by Floods Minister Rory Stewart. After several years of wrangling and delay, it seems that the scheme will definitely come into force next April, thus ensuring affordable flood insurance for homes across the UK.
I’ve just had a look back to see how long we’ve been writing about this. Incredibly, it is almost exactly three years since we first posted a blog about the end of the Statement of Principles, which covered the agreement between the Government and insurers over flood insurance. The blog concluded: “Something needs to happen quickly.” It didn’t.
We then reported on the seemingly endless difficulties over reaching agreement, with several false dawns. The Association of British Insurers extended the previous scheme while these negotiations continued and then, in May 2013, agreement was reached. But it’s taken over two years since then for the scheme to be drawn up and approved. We’ve had objections, additions, challenges, changes, disagreements…. Then there were technology issues, which held up progress. But in the end, despite lingering dissent over various aspects of the scheme, there was just no better alternative.
So now it’s here, with an operational start for Flood Re in April. What an extraordinary tale but, like all the best stories, it looks like it’s going to have a happy ending.
It’s not long until Flood Re is implemented, which is aimed at providing affordable flood insurance for everyone – even those in high-risk areas. As part of this, insurers want more accurate flood data to help calculate risk, and this has highlighted what in the past has been a weak area: mapping the risk of groundwater flooding.
There are four types of flooding: fluvial (from rivers): pluvial (surface water from rain); coastal; and groundwater. The latter occurs when water rises up from below ground – for example, from underlying rocks or from abnormal springs. This tends to happen after prolonged periods of heavy rainfall and as a result the water table rises above normal levels. One key difference compared with other types of flooding is that groundwater floods tend to take longer to dissipate. There’s a very good explanation of it all on the UK Groundwater Forum website.
According to a recent article in Post magazine, groundwater flooding is more difficult to predict than the other types of flooding. But work has now been carried out which should lead to improved groundwater risk modelling: specifically, flood risk consultancy Ambiental has produced a ‘Groundwater Flood Risk Map’, which can be used by insurers to assess flood risk to even individual properties.
On the subject of Flood Re, the Association of British Insurers (the ABI) has put together a really good explanation of what the scheme is all about, which you can find on its website.
We’re all waiting for the start of Flood Re – the scheme to provide affordable flood insurance for even those properties at the highest risk of flooding. In the meantime, there are some very interesting associated moves happening.
Groups in the insurance industry have now called for the introduction of a flood resilience certificate for household properties. This would allow homeowners to prove that their property had undergone adaptations which would improve its defences against flooding. It’s been described in the press as something which would operate in a similar way to your home’s energy performance certificate.
The key point of this new scheme would be to help insurers assess the risk of flooding for individual properties rather than lumping all properties in a postcode together, despite there being a huge disparity in risk. And the obvious extension of this is that, if you have a flood resilience certificate, your insurance premiums might go down.
There is still a long way to go. But influential bodies in the insurance industry have put their weight behind the scheme and one – the Association of British Insurers – has asked for a deadline of the end of this year for agreement to go ahead and the end of next year for a pilot scheme to start. We will keep a watch on any developments.