Floods: One year on

A flooded living room with a rubber duck in the middle of it

After the government announced properties in council tax bands H and I would be eligible for Flood Re, how are insurers prepared for future flood events and what have they learned since 2014?

It’s all in the timing: the pre-Christmas announcement that properties in council tax bands H and I would, after all, be eligible for Flood Re somewhat took the wind out of the sails of some critics.

Mark Hayward, managing director of the National Association of Estate Agents, welcomed the concession by the Department for Environment, Food & Rural Affairs. He said sellers could now feel more confident about the prospect of selling their homes, and potential buyers more confident in making a purchase. Moreover, the value of their homes was less likely to be adversely affected by flooding, because the associated risks had been mitigated.

High-net-worth insurers lobbied for this policy reversal, and Hiscox’s CEO, Bronek Masojada, welcomed it as an important step to making Flood Re more inclusive, although he said the industry would need to continue working with the government and the Association of British Insurers to find more ways to expand its reach.

It will provide affordable insurance to owners of flood-prone homes, premiums will be capped and flood claims met from a central pool where the insurer has opted to ‘cede’ the home into the scheme. But if flood-risk homeowners felt a surge of relief at the prospect of subsidised flood insurance, there was “little festive cheer for leaseholders, landlords and small businesses” who remain excluded, observed Ian Fletcher, director of policy at the British Property Federation.

He added: “The government and the insurance industry continue to pick and choose who can participate in Flood Re, and this latest announcement will look odd to the millions of owners of flats [who] are not protected against escalating premiums – while the most expensive houses in the country are. Promises that the government and the industry will monitor the situation of those excluded groups are worthless while they remain so airy-fairy on what the trigger [points are] and how they would act.”

Press coverage
The Flood Re news also averted public focus from headlines about allegedly extortionate renewal premiums in flood-risk areas. But press coverage about some families facing a second Christmas out of their homes suggests the impact of the worst winter on record is still being felt. Angus Tucker, managing director of Lorega Solutions, confirms some claims remain unsettled, but explained: “You can’t reinstate until the property is dried out. If old properties are dried out too quickly, it can cause more damage, and when you have a surge event, there’s only a finite number of contractors around.”

One such contractor, Richfords Fire & Flood, has been working in the village of Moorland on the Somerset Levels. Its managing director, Steven Richford, explains a rapid-drying system was used in some properties, but wasn’t an option for others who used “dessicant dehumidifiers and enveloping”, although this approach takes longer.

Jonathan Davison, strategic development director at the British Damage Management Association, highlights improved instruction and response times – where water levels allowed – enabling triaging, stabilisation and damage mitigation to begin at the earliest opportunity, helping reduce or prevent further deterioration and secondary damage.

It’s easy to forget that December 2013 saw a rush of claims flooding in, with Ageas alone receiving 26,000 between that point and February 2014. The insurer had learned lessons from the 2012 floods, and had in place an entirely in-house end-to-end claims-handling process, reports Rob Smale, claims director.

This meant claims staff could deal with all aspects of a claim, from notification to settlement. 99% of cases have been closed, and according to Smale the few remaining are complex and those claimants have received interim payments. He adds: “A shorter, simplified claims process helped halve our storm claims life cycle and the percentage of claims resolved on first-call increased by nearly 40%. Of the families we have supported into alternative accommodation, only 10 have yet to return to their properties.”

Varied damage
From a loss-adjusting perspective, the level of property damage varied widely – from portfolio to portfolio and from area to area, recalls Phil McNeilage, CEO of Cunningham Lindsey. “From the several waves of claims we received, just under 10% were for flood damage. Some of these were particularly severe, with average repair costs exceeding £100,000.”

The worst-hit homes remain outstanding, of whom McNeilage expected around 85% to be back in their homes by the end of 2014, with an aim “to get all outstanding flood-claim customers back in their homes during Q1 2015.” Many homes were severely damaged after sitting in water for weeks or months, a few were re-flooded, and others had technical building issues. “We’ve also had to meet personal customer requirements, which can lead to a longer repair period,” he added.

Accommodating policyholders who opt to do alterations at their own expense can also lengthen settlement periods, according to Andrew Bussey, a director at Smithers Purslow, a specialist in high-net-worth properties. His company handled over 40 flood claims in the Thames Valley, more than 90% of which were closed within 12 months. Those that remain open are where policyholders chose to do uninsured work, like re-configuring the ground floor. The extra time spent in alternative accommodation is also borne by the householder in these cases.

Is there any dispute about paying for flood resilience repairs or is this regarded as betterment? “Generally, we have found that most insurers are happy to pay for economically sensible flood resilient repairs, and they have not regarded this as betterment,” says McNeilage.

Gareth Ellis, UK incident & large loss portfolio manager at Zurich, comments: “We view every flood event as an opportunity to learn and increase flood resistance and resilience for the future. While there are policy, regulation and timing challenges in effecting repairs to flood-damaged properties, we explore the potential for deploying ‘build-back-better’ strategies wherever possible.”

This is important, with around 5.2 million UK homes in flood-risk areas, and only 1.7 million with flood prevention measures installed. Insurers have an interest in educating and encouraging customers to manage their own flood resilience, and Zurich recently issued a revised flood risk insight guide, and has developed a mechanism of working on an individual basis with those wanting additional support via its risk engineering and major incident teams.

Insurers could also stimulate homeowners’ interest in investing in flood protection and mitigation by rewarding them, comments Bill McCarthy, managing director of Lexis Nexis Risk Solutions. To help owners prove they have done the work, his company is working with Axa and the Building Research Establishment to develop a new property flood resilience database, which will record such information and could form the bedrock of a kind of reward programme.

Keeping businesses running
While the media tends to feature displaced families, business owners can also suffer life-changing damage from flooded business premises. Chris Hall, managing director at Questgates, comments: “They can’t trade, so it is imperative to get them back up and running, which gives it a greater dynamism. Insurers did take that into account this time, because of adverse publicity in the past about companies going out of business.”

Martin Ashfield, head of commercial property claims at Axa, says a couple of its business clients are still not back in their premises due to the vagaries of drying out and the complexity of the works. “Sometimes bespoke machinery needs to be ordered from Japan or Germany, and there is a queue. We also need to make sure we can quantify the business interruption claim.”

He flags up insufficiently long business interruption indemnity periods being purchased as an issue – typically 12 months – whereas a 24-month period is needed for resolution of complex claims. Research for the Federation of Small Businesses, published in December, found 29% of its members had no business interruption insurance at all, meaning this group has no cover for loss of income and costs incurred as a result of damage to property by flooding.

Six sources of flooding

• Tidal – sea and river defences

• Fluvial – floodplains of rivers

• Pluvial – surface water run-off

• Sewers – combined storm and foul
capacity exceeded

• Ground Water – low-lying areas sitting
over aquifers

• Man-made structures – canals, reservoirs, industrial activities, water pumping stations

Source: RIBA Climate Change Toolkit

 

As well as the impact on consumers and businesses, those working within insurance are also affected by extreme weather events. The many and varied causes of flooding must complicate underwriting, so are insurers using flood data and climate change modelling as a guide? “Some are prepared to take on any risk, as long as it’s priced appropriately, whereas others are keen to reduce exposure,” remarked McCarthy, whose company has devised Map View, a flood risk data and exposure management tool.

He explains: “Data is becoming much more granular: for example in location data, there is a shift from understanding flood data at the postcode level, to the individual street, then to the [actual] location. This is important, because location matters – in a flood, one side of a street can be inundated whilst the other side remains bone dry – but a postcode approach won’t see this distinction.”

Justin Butler, managing director of Ambiental Technical Solutions, explains flood hazard data is different from climate change modelling. “Most insurers have access to flood data, but the issue is its granularity and quality, and whether they are making the most of it. Insurers that rate at postcode level risk tarring everyone with the same brush. A person at the top of the hill is not the same flood risk as at the end of the hill.”

Ambiental recently launched its fourth-generation national-scale flood dataset, which lets insurers assess flood risk at building level. Responding to a need expressed by insurers, it includes enhanced approaches for resolving off-floodplain risks.

Broad postcodes
Ordnance Survey has traditionally supplied a co-ordinate against a postcode, explains James MacTavish, account manager for financial services at the company, but it can now put one against every address, because “if a river bursts its banks, an entire postcode is very broad – especially in rural areas.”

MacTavish says another big growth area is property footprint, giving a current view of the site and picking up any changes in shape and size of the building, as well as its height, for storm and wind damage risk. According to the marketing material for OS Master Map, its topography layer gives the context needed to interpret addresses, routes, imagery and other information, as well as complementary terrain.

These sophisticated tools are fascinating, but postcoding is cheaper. That its broad-brush sweep may inadvertently exclude some homeowners from obtaining the insurance cover they need to get a mortgage is the kind of socio-political question that is outside the remit of underwriters, unless leaned on by governments.

However, access to up-to-date quality data will be needed to identify which properties to cede to Flood Re, Butler observes, who also asserts that it is relevant to insurers’ need for reinsurance.

“Flood Re will have an impact, but only on the highest risks. There’s still going to be huge challenges in profitably serving those that are not covered by it,” comments McCarthy.

Looking to the future, he argues that personal lines needs to follow commercial insurance to a “building specific” understanding of risk, to comprehend the risk profile of their book of business.

This article was published in the 15 January edition of Post magazine.

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