How underwriters calculate flood risk

  • 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

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 that customers understand the various factors that influence these calculations.

Here, we explain what you need to know.

Assessing the likelihood of flood claims

“From an exposure point of view, it can be tricky to assess the likelihood of flood claims,” says Evan Moore, Senior Market Underwriter at Zurich. “We’re often looking for the chances of a one in a 100 year event, and typically as customers records don’t go back that far, a wider perspective is important.”

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.

“The second thing we look for,” explains Evan, “is the flood resilience of the building itself.” The factors taken into account include the number of storeys a building has, the existent and use of its basement, and the building construction itself.”

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

“The mechanics of flood calculations have not changed in recent years, but experience has,” explains Evan. “There will continue to be natural changes to flood calculations and premiums, as we better understand the risks.”

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

For example, Evan points out, “there is now more understanding and better modelling of pluvial (rain water) flooding. As the built environment changes, it changes the way surface water reacts.”

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

“It is also important to ensure that any infrastructure needed to get a business up and running again is not compromised by a flood event,” adds Evan. This can include moving plants and generators from the basement to the roof and moving electricity sockets higher up walls.

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

Stay on top of the changes

“Ultimately, it is an ever-changing situation that needs regular assessment,” says Evan. “We know that climate change is happening and is having an impact, we know that the built environment is changing all of the time and we know that regulation can always be 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.

Find out more and access helpful guides and insight with our new Flood Risk Resource.