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How underwriters calculate flood risk

At a glance

  • Storm and Flood premiums account for roughly 14% of the premium on an average property policy
  • There is a wide range of factors that influence the assessment of flood risks and associated premiums
  • We look at the various assessments underwriters make when calculating these

This article counts towards accumulating your annual CII CPD structured learning hours for Claims and Weather.

By reading this article, and correctly answering the three questions below, you will have achieved the following learning outcome:
Recognise the different categories of flood risk and identify how each category could affect customers differently and summarise latest claims trends and identify how the insurance market is responding

Visit the CPD Hub to log in and begin accumulating CPD hours.

As of 2017, more than five million households and businesses in the UK, or roughly one in six, are at risk of flooding.

Flood premiums account for a significant proportion of the average property premium, meaning that risk calculations can have an important bearing on insurance costs.

Assessing flood risk is an ever-changing calculation for underwriters, as new data becomes available, climate change continues and the built environment evolves.

Given the bearing that flood risk calculations have on premiums, particularly material damage and business interruption, it is important to understand the various factors that influence these calculations.

Here, we explain what you need to know.

Assessing the likelihood of flood claims

To get the most accurate picture of whether a particular property is likely to flood, underwriters will turn to specialist providers able to combine flood data nationally.

Zurich looks to include a blend of internal and external flood mapping data, which can include previous flood events, how close a building is to rivers, lakes or the sea, and interpretation of accurate topography readings among others. Prevalence of weather systems and average rainfall in any particular region also contributes. In addition, the construction of the building itself not just its surroundings, comes under the spotlight.

For example, a building made primarily of concrete and brick (quick drying), will be deemed to have better flood resilience than one with a lot of bespoke timber flooring and cladding (slow drying).

Underwriters are also increasingly assessing likely flood depth. For example, when water falls on a wide area such as a flood plain, the flood depth is likely to be low. Conversely, water falling in a valley is likely to lead to a high flood depth and potentially greater damage.

For commercial customers, the geographic spread of a portfolio will also affect an underwriter’s assessment. If all buildings are close together (and thus subject to the same conditions), the likelihood of a large claim increases.

These factors all combine to influence the flood risk calculation process, and ultimately, flood premium and terms.

How calculations change

Views of flood risk change for a number of reasons. However, this often comes down to steadily improving flood modelling, mapping and insurer experience.

More concrete being laid down in urban areas – without appropriate water run-off or drainage – can lead to ‘roads turning into rivers’ that will then channel flood water to different locations. This results in areas insurers previously viewed as low risk needing to be assessed differently.

However, flood risk calculations can also change for the benefit of the customer in reducing premiums. In most cases a flood defence installation, for example, can lead to a reduction in perceived flood risk and associated premiums.

Customers can assess their own flood vulnerability using resources from the Environment Agency in England and Wales, SEPA in Scotland and the Department for Infrastructure in Northern Ireland.

How customers can reduce the chance of flood claims:

  • Business continuity and contingency plans should be developed. This can be as simple as understanding where there is spare capacity within your organisation and then drawing up post-flood event plans
  • Sign up to flood warning alerts and stock up on sand bags and other prevention measures. This can reduce the chances of making a flood claim

For more information, read our An interactive guide to reducing flood risk interactive infographic.

Stay on top of the changes

Flood risk is constantly evolving, especially with the impact of climate change, and the materials and methods used for buildings is changing.

With the environment constantly changing, and with regulations always subject to change. The more that customers can stay on top of and react to these changes, the stronger their position will be in risk assessments.

For more information please speak to your local Zurich contact.

You can also find out more and access helpful guides and insight with our new Flood Risk Resource.

Image © Getty

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