A few weeks ago I travelled to the Lake District for a couple of days on a working visit. Whilst there I heard some hearbreaking stories of the devastating effects of the flooding on businesses in the area which may well have an impact more profound and long lasting than the awful flooding of homes. According to a recent Office for National Statistics (ONS) business population estimate over 400,000 micro businesses are based in the North West of England. But larger businesses are also affected. A biscuit factory in Carlisle and an interior furnishings business in Lancaster were flooded. Some of the businesses have gone forever leaving their owners penniless. In 2007, when a similar pattern of flooding hit, total insured claims were £3.2bn. As this Guardian newspaper article points out, in 2009 it was estimated that infrastructure repair alone following the flooding that year would cost £376 million. Towns like Cockermouth took literally years to fully rebuild. It is worse this time with accountants KPMG predicting that the total cost of the floods in December 2015 would exceed £5bn, with about £1bn falling to families and businesses with no or inadequate insurance. Although my direct experience is of the Lake District, the same problems occur in other flooded areas such as Yorkshire.
So what about business insurance? Many policies will not provide cover beyond a 12 month notional business interruption period. But some premises are seriously damaged and will take months to dry out and repair before the owners can even think about moving equipment and production in again. By the time custom is rebuilt to levels of profitability this can take them well beyond the 12 month limit. There is another group of businesses which are physically unaffected by flooding but are still being forced into bankruptcy. This is because the vast majority of business insurance policies do not cover ‘loss of attraction’ or ‘market value’, affecting businesses hit by the destruction of infrastructure. The A591 road, for example, suffered severe damage along some sections and is taking months to rebuild. With road bridges also suffering damage, traffic flows have been completely disrupted meaning for some businesses passing traffic has ceased altogether. It is estimated that one way or another about 20% of businesses have been affected by the extreme weather.