Diving deeper into Flood Re

After the impact of the Flood Re agreement, it has been announced that thousands of SMEs who are vulnerable to floods may not be able to afford insurance cover. Those who can could find a long process for claims ahead of them, meaning a loss of money and business.

Flood warning signAfter further investigation of the impact of the Flood Re agreement, some interesting facts have been brought to light. The British Property Federation has announced that the Flood Re will leave thousands of small and medium sized enterprises (SMEs) unable to afford insurance cover and has expressed concerns that SMEs will find themselves excluded from the proposals.

 

 

According to the Companies Act 2006, an SME is determined by the following:

  • Turnover of no more than £2.8 million;
  • Balance sheet total of no more than £1.4 million;
  • No more than 50 employees.

A medium sized company must satisfy at least 2 of the following criteria:

  • Turnover of no more than £11.2 million;
  • Balance sheet total of no more than £5.6 million;
  • No more than 250 employees.

The British Property Federation is concerned that these businesses are more vulnerable to flooding and by the aftermath it will cause to them, compared to much larger businesses who are able to negotiate and secure affordable insurance and will have strong contingency plans in place.

In Europe this year there have been a number of large scale floods that have affected SMEs in the CEMEA region, with hundreds estimated to have suffered significant damage. Over the last few years in Britain we have seen a surge in the number of floods, with an estimated £1bn worth of damage caused in 2012, the highest since 2007. If this trend continues, and SMEs are left unable to afford insurance cover, small businesses may be left footing the bill for expensive repairs and stock losses, potentially costing them their livelihoods and leaving them destitute.

Even if these small businesses could afford cover to protect against floods, the insurance claims process means that pay-outs often take a long time and they could find themselves losing money and business before any recompense is received.

Here is a brief outline of the process:

Diagram600
Unfortunately, there is little insurers can do to speed up the process. Water can cause all sorts of future problems, and failure to remove contaminated materials to reduce moisture and humidity may present serious long-term health risks from bacteria and mould, as well as damaging the foundations of the building.

Insurance claims seem to follow a strict seasonal pattern, with more flood claims coming in autumn and winter. However, more recently there has been an influx of claims coming out of season due to unseasonably wet summers, so more claims handlers are required throughout the year, therefore causing strain to the market.

We welcome all comments and enquiries on insurance-related matters. Please feel free to contact Jennifer Harrington on 01273 651508 or at jennifer.harrington@grovelands.co.uk.

– Jennifer Harrington

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