The insurance market is currently going through an extensive period of ‘hardening’. Insurers are driving higher premiums and tighter terms and conditions, with particular emphasis on flood risk. As there are only seven specialist motor trade insurers operating in the open market, this process will affect all motor dealers. It is crucial that business owners understand how this is likely to impact their insurance coverage and cost.
Drivers of the hardening market
The insurance hardening market cycle is being exacerbated by falling investment returns, changing legislation, as well as the onslaught of risks associated with the coronavirus pandemic and climate change. Insurers experienced higher claims across almost all product lines in 2020.
Global commercial insurance pricing increased by 20% in the third quarter of 2020; the largest quarterly increase in more than eight years as insurers attempt to reduce their risk exposure and reverse the squeeze on profitability.
A major contributor to the ‘hardening’ market is natural catastrophe losses, which continue to escalate around the world. The systemic effects of climate change are here. Stronger and more frequent natural disasters are destroying homes and businesses at record-breaking rates and putting entire flood systems at risk.
Between November 2019 and February 2020, thousands of homes and businesses were flooded in South Wales, Northern and Central England and the Scottish Borders. These storms, costing in excess of £360 million, were a timely reminder of the challenge’s insurers face from the growing threat of flooding due to climate change. Furthermore, the flooding in parts of south Yorkshire and the Midlands in November last year added an additional £110 million to insurers claims costs.
As climate change brings more intense storms and rising seas, Britain faces rapidly growing and shifting flood threats; something few of those at risk are yet to be aware of, potentially facing the prospect of huge insurance premium increases, restricted flood risk cover or being unable to buy flood cover at all.
Our businesses are exposed as Britain fails to confront flood risk
About 5.2 million homes and other properties in England are at risk of flooding. Sea levels have risen about 16 cm (6 inches) in Britain since 1990, making coastal areas more vulnerable to storm surges. The Met Office has reported that extended periods of extreme winter rainfall are now seven times more likely than before.
Businesses, hit by more frequent and severe flooding, are finding it harder to buy or afford flood insurance coverage, raising the prospect of them being fully exposed to flood losses themselves. It is a sad reality that several motor dealers faced closure in this last year due to being unable to secure flood insurance cover; required by their bank/vehicle stock funders.
Invest in flood risk management
Motor dealers need to be investing in proactive flood risk management to provide practical and manageable solutions for underwriters to insure them. Knowledge of insurers’ flood risk strategy is paramount. Insurers’ will focus on external exposures, such as compounds, forecourts and the proximity to watercourses. They will also have to comply with strict accumulation limits within certain areas. Basically, if your insurer has reached their accumulation limit in your area, they will be unable to provide cover.
Insurers’ will need to understand what risk assessments motor dealers have completed in respect of flood exposures? Is there a robust business flood plan in place? Have you signed up for flood alerts? Do you have a contingent plan, should you need to move vehicles quickly?
Most vehicles will have low seals. Water only needs to reach around 30cm deep for these to be penetrated. Once a seal is broken, the vehicle is likely to be written off. There is also the need to consider the enhanced technology and complex electrics within vehicles; again, if water enters the electrics then the vehicle is likely to be written off.
These factors explain why vehicle water damage claims are getting more expensive and likely to get worse too, with the move to electric and hybrid vehicles.
Working with knowledgeable partners is a must. Aligning with an experienced, proactive insurance broker to provide a united stance on presenting your flood exposure to insurers in the best and most positive light is crucial for securing flood risk cover.
To reduce exposure and resultant interruption to your business, it’s imperative that motor dealers recognise the need to improve their flood resilience, before the storm clouds gather, not after.
What your broker should be doing for you now
There are numerous practices, such as designing Business Flood Plans, helping you sign up for flood alerts, create Flood Toolkit templates and guidance for the preparation of your property for flooding. Click Here for Hamilton Leigh’s – Major Changes to Flood Risk in the UK bulletin.
The Environment Agency estimates that with proper flood preparation, most businesses can save up to 90% on the cost of lost stock from flooding, with a proper Business Flood Plan.
Your approach to your insurance renewal can also make a difference. Start your renewal process early; insurers are becoming more selective about the risks they choose to write. Agree your renewal strategy with your broker; devise a plan to reflect your risk tolerance appetite. Be prepared to provide additional information as insurers now require more detailed underwriting information to demonstrate your risk management controls.
Hamilton Leigh has designed a Business Flood Plan template, available to all motor dealers, in addition to a Flood Toolkit to help proactively manage your flood risk exposure.
For further information and to receive a copy of Hamilton Leigh’s Business Flood Preparation Checklist and Flood Toolkit, please contact Lee Cohen on 07980 606886 or email floodrisksupport@hamiltonleigh.com.