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Business owners guide to making a flood insurance claim

If you’ve experienced a flood at your business premises, you face a long process before you can get your business and your life back to normal. Here is a guide to what you can expect to happen, in what order, and the options you face.

Steps To Take Your Options
Step 1. Safety is paramount. It is your responsibility to mitigateany damage, prevent theft, and ensure your premises are safefor people to enter. Once the water has subsided, there are twokey steps you must take:

  • Firstly, has the water compromised the electrical safetyof your premises? You must employ a qualified electricianto carry out all the necessary safety checks beforeanyone enters.
  • Secondly, has the water compromised the structure ofyour premises? You need to bring in a qualified(chartered) surveyor* to check.
As it’s your legal responsibility to do this,and if there’s immediate danger, youneed to act immediately. You can thereforego ahead and instruct electriciansand contractors to make your buildingsafe as necessary as long as the costsare appropriate. If there is no immediatedanger, you can wait for the insurancecompany to do it.
Step 2. Create a communications plan. This should include:

  • Communicating with staff, giving them the details theyneed know about the incident and what they will berequired to do in the short term.
  • Communicating with customers: probably a holdingstatement until you have firmer plans for restoring yourbusiness.
  • Communicating with any other interested parties, suchas suppliers and the local community.
Step 3. Notify the landlord. If you do not own the property, youneed to notify the landlord immediately. It will be vital from thispoint to co-ordinate all the steps you take with the landlord’s owninsurance process.
Step 4. Decide if you want to use a loss assessor. A lossassessor works on your behalf, handling the entire claim processincluding buildings, contents and business interruption. Thesooner you decide to engage one, the more of the burden theycan take away, enabling you to focus on running your businessat this difficult time.A loss assessor can make a considerable difference, particularlywith your business interruption claim, and this difference willusually more than offset their professional fees. Getting acceptanceof liability with a business claim can take weeks or months;the skill and experience of a loss assessor can shorten thisperiod dramatically, enabling funds to be released by the insurerto keep your business running.But remember: while the insurer deliberates, you are still requiredto mitigate your losses (for example by trading in areduced capacity, sub-contracting orders) and to deal with allhealth and safety matters. Consider carefully the advantages ofusing a loss assessor and the potentialpitfalls if you don’t. If you are using aloss assessor and you are not the freeholder,it will be extremely beneficial ifyour landlord appoints the same lossassessor.
Step 5. Notify the insurance company. You must inform themimmediately. Many will have a special emergency number whichwill be open 24 hours every day throughout the year.

All the steps above should be completed immediately following the flood.

Step 6. Appointment of emergency contractors. These willnow be appointed to carry out any immediate emergency works.This may include:

  • Salvaging and safely storing any contents, stock, fixtures,fittings or equipment which are not too badly damaged.
  • Stripping out all damaged materials, such as carpets,curtains and stock.
  • Removing plaster to a height of one metre above thewaterline (or in some cases higher if the flood water isdeeper), as well as floorboards and skirting boards.
  • Sanitising the property: the floodwater (called ‘black’water) will inevitably have been contaminated, potentiallycreating a severe health hazard.
  • Installing drying equipment.
  • Treating timbers to safeguard against rot.
  • Checking for the presence of asbestos.
  • Ensuring electrical safety.

Remember: if there are any queries over your claim, your insurersmay not agree to pay for this work until this is settled. Thismay take weeks or months. In the meantime, it is your responsibilityto ensure the safety of both your employees and the public.

You are entitled to appoint the contractorsyou want provided they are suitablyqualified and their costs are reasonable.You do not have to use your insurer’scontractors.
Step 7. Meet with the loss adjuster. The insurance companywill immediately appoint a loss adjuster: they work on behalf ofthe insurer and will handle all the investigations and negotiations.An initial fact-finding meeting will take place immediately,probably at your business premises. The loss adjuster will assessthe damage as well as asking you pertinent and searchingquestions about your loss including your company’s financialstatus at the time of the loss, policy conditions and disclosures,your claims history, and the level of cover (i.e. whether youadequately insured or under-insured).
Step 8. Loss adjuster’s initial report. Following the initialmeeting, the loss adjuster will submit a detailed report to theinsurance company, enabling their underwriters to decide whetheror not to accept your claim. This report will include:

  • The circumstances surrounding the flood.
  • A recommendation on whether the claim should beaccepted – in other words, whether the insurer shouldaccept liability and pay your claim.
  • A reserve figure based on what the loss adjuster believesthe total value of the claim will be.
  • A view on whether the insurance cover is sufficient tocover the loss. If it is not, you face penalties for underinsurance.

It may take several months to reach this stage in the process.

Step 9. Mitigate your loss. It is your responsibility to mitigateyour loss and to do everything you can to resume trading asquickly as possible. You cannot wait until the insurance companyhas accepted the claim and released funds before you do anything.And ‘impecuniosity’ (lack of funds to cover your costs) willnot be considered a valid excuse by your insurers – you areexpected to find the funds to support your business at this stage.Additional losses that arise from delays in re-establishing thebusiness will not be covered by the policy. So, while investigationsinto liability proceed, the onus is on you to do whatever isnecessary to ensure the survival and prompt re-establishment ofyour business: if you don’t and your business fails in the interim,you are unlikely to receive an insurance settlement to cover yourfull losses.
Step 10. Look for alternative premises or ways of working.You must continue to do everything you can to keep trading. You have a number of different optionsto keep your business trading. Theseinclude:

  • Moving your operations intotemporary premises while there-instatement work takesplace.
  • Sub-contracting existing ordersto another company to maintainturnover and protect customerrelationships.
  • Moving activities into areas ofyour business located elsewhere,if applicable.
Step 11. Interim claim. You or your loss assessor will nowsubmit an interim claim for material damage and business interruption.This should include:

  • Funds needed to resume or continue trading (for exampleto replace damaged equipment or pay for alternativepremises).
  • Calculation for your loss of gross profit, which will generatefunding to enable you to deal with ongoing costssuch as staff wages.
  • Urgent interim funding for increased costs of working,such as temporary premises and sub-contracting costs.
Step 12. Decision on liability and sufficiency of cover. Thisshould now be made and will then enable your insurance claimto proceed.
Step 13. Meet with the loss adjuster. Now that liability hasbeen agreed, a meeting will take place to agree how the claimcan move forward. This should include a detailed plan outlininghow you can continue to trade and safeguard the survival of yourbusiness.
Step 14. Appointment of qualified* (chartered) surveyor. Heor she will assess the damage to your premises and put togethera detailed scope of works and specification for the re-instatementworks to your premises. If you are the leaseholder ratherthan the freeholder, your landlord will handle this aspect of theclaim, but you need to be kept abreast of developments, so youcan co-ordinate the scheduling of the building repairs to fit in withthe installation of your replacement fixtures and fittings. We would recommend you do not use asurveyor appointed by the insurancecompany or their loss adjuster. Youneed to ensure they are truly independentand will work in your best interests**
Step 15. Preparation of the claims. These should include,where applicable:

  • building re-instatement plus surveyors’ fees.
  • machinery, plant and trade contents.
  • fixtures and fittings.
  • stock.
  • business interruption.
Step 16. Ongoing meetings with the loss adjuster. These willcontinue at each stage of the claim. There will be regular meetings,either on site or at the loss adjuster’s offices, and they willcover the entire claim including all the items mentioned in step16. The loss adjuster will appoint a business interruption expertto monitor the actions you are taking to mitigate your losses. Heor she will also scrutinise your claim as it progresses.
Step 17. Surveyor’s work. You or your loss assessor will needto meet regularly with the surveyor and the loss adjuster to agreeand monitor works to your premises.
Step 18. Agreement of some aspects of the claim. It ispossible that some parts of the claim, such as stock, fixtures andfittings, plant and trade contents, will be agreed at this stage toenable you to replace these items quickly. Many others, includingbusiness interruption and the buildings claim, will continue.You need to keep managing the business interruption claimcarefully in order to mitigate your losses. The surveyor will meet with thecontractors on site to agree the final scope of works.
Step 19. Tender process. The surveyor will now put the rebuildingworks out to tender. Tenders will then be submitted bycontractors bidding for the re-building work: these will be analysedby the surveyor. If the contractor you would prefer tocarry out the work has not submitted thelowest-priced tender, your options areas follows:

  • your contractor can reduce theirquote
  • you can fund the difference
  • you can agree a combination ofthe two.
Step 20. Pre-contract meeting. The surveyor will meet with thecontractors on site to agree the final scope of works, programmingworking practices, etc.
Step 21. Building works. These now progress until completion.
Step 22. Claim. Apart from the business interruption element,most other heads of claim – for example, stock, fixtures, fittings,plant and equipment – should be agreed by now and all paymentsmade. Depending on the severity of the damage, thebuildings claim may be nearing completion.
Step 23. Communications prior to re-opening. As the end ofyour claims process draws near, you should start to think abouthow you communicate to all interested parties that you will soonbe back fully operational. You may even want to plan additionaladvertising or a re-launch event. You may want to plan activity such as apress campaign, additional advertising,local leaflets or a re-launch event.
Step 24. Move back in. You should now be able to move backin to your re-instated premises.
Step 25. Business interruption claim. This remains ongoinguntil the end of the indemnity period or until the company is backup to the level of trading it would have reached if the escape ofwater had not happened.

Morgan Clark – supporting you all the way

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