With commercial properties twice as likely to be at risk of flooding compared to residential properties, Tysers explains why you should consider parametric flood insurance for your businesses’ wellbeing
Flood is a fundamental risk that will usually be covered in a buildings and contents policy.
Some businesses have faced the withdrawal of flood cover by mainstream insurers, or seen punitive restrictions imposed.
In such cases some clients have opted to take out parametric flood insurance, sometimes known as ‘event based’ insurance to either complement or replace the cover offered by their existing policy.
Do you know your flood risk?
Commercial properties are 2x more likely to be at risk from flooding compared to the average British residential property
Manufacturing, Wholesaling and Logistics are one of the most at-risk categories with 20.7% at risk of flood damage
Over 1 in 4 of those who have flooded in the past 10 years experienced a prolonged period of business interruption
Over 436,000 (27%) of commercial properties in Britain have at least a low flood risk; almost 300,000 (18%) have a moderate risk and 236,000 (14%) are at significant risk of flooding
How does parametric flood insurance work?
Parametric flood insurance works by allowing the policyholder to select a ‘trigger depth’ where flood water would cause significant damage to the property and contents.
A depth monitoring system is installed at the property – often these are automatic, and the insurance provider is alerted when the waters reach the agreed trigger depth. Once confirmed insurers will arrange payment of the agreed amount.
What are the benefits of parametric flood insurance?
The policyholder determines their own limit of cover and agrees a fixed settlement to be paid out in the event of damage without the need for the involvement of loss adjustors.
In the event of a flood that reaches minimum depth, the payment will be made within a much shorter period (typically around 48 hours) allowing the business to immediately pay for any upfront costs e.g. employee wages, replacement of contents or key machinery.
Multiple trigger depths can be added to the programme, for example a basic level of settlement may be triggered when flood levels reach 40mm, however if waters reach 1M an agreed additional amount would be paid to the policyholder.
How much does parametric flood insurance cost?
The trigger depth and settlement amount will be the main factors that determine the cost of your policy, with lower trigger depths and or higher settlement amounts being the major cost factors.
Investing in Property Flood Resilience (PFR) measures can reduce the risk of flooding, and the potential damage to property, equipment and stock at lower flood levels. These measures may allow the policyholder to select a higher trigger depth resulting in a lower premium.
Taking measures to reduce the financial impact of flooding, such as raising electric and gas points as well as other utilities where possible, and ensuring, if possible that machinery and stock is also raised above ground may also enable the policyholder to select a lower settlement amount and or higher trigger depth.
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