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The Property Flood Resilience Action Plan, also known as the Bonfield Report, was officially launched on 20thOctober. Dr Peter Bonfield was appointed by Rory Stewart, Parliamentary Under Secretary of State for Environmental and Rural Affairs to bring commercial interests together in a Roundtable to consider how collectively they could encourage and enable a better uptake of property flood resilience measures for properties at high risk of flood.
The Roundtable comprised private sector representatives from the charity, insurance, loss adjusting, business services, products, legal, surveying and flood recovery industries. They considered how home and business owners could be better equipped in a flood event to stop flood water entering their properties and speeding recovery if it does.
The Action Plan identified the reasons why people do not consistently prepare their properties for flooding, and then determined what could be done to address the challenges. The Roundtable have set in motion some tangible actions and have also made some high level recommendations for both Government and the business world.
In this opinion piece we consider the impact the Bonfield Report will have on the insurance and building industries, and talk about our own experience of flood claims. We also look at the flood resilience measures that are available and the changes in behaviours and attitudes that are needed.
December 2015 was the wettest December on record, but also the wettest calendar month overall since records began in 1910. More than 17,000 properties were flooded. According to the ABI the total cost to insurers was £1.3 billion and the average expected pay out for each domestic flood claim was £50,000 – compared with an average from the 2013/14 winter storms of £31,000.
The climate is changing and flood events are going to continue at regular intervals. Unless a coordinated plan is put into place insurance industry costs will continue to rise and misery and disruption will continue for thousands of home owners. Whilst investment in flood defences is vital, property level flood resilience measures can also be put in place. These can be preparatory measures for properties at risk of flooding, or can be installed during the repair of buildings after they have been flooded. Such measures can help prevent water getting into a property or aid rapid recovery by allowing property owners to simply washout and disinfect their properties rather than requiring wholesale restoration and reinstatement.
But the take up of property flood resilience measures remains low and, incredibly, it is not normal practice for properties in areas of high flood risk to be made more resilient before or after a flood. According to the Action Plan report the typical range of measures has a cost-benefit ratio in excess of £5 for every £1 invested in terms of reduced damages.
The vision and recommendations
The Action Plan sets out a vision for the future, together with recommendations. There will always be some properties that will be prone to flooding and the Roundtable has said it would like to see:
> After one year – a better national understanding of what property level resilience is.
> After 2 years – significant progress towards developing the systems and practices within the insurance, building and finance sectors that normalise the uptake of property level resilience within existing activity.
> After 3 to 5 years – a situation where those at high flood risk have the knowledge, capability and means to adapt their properties in ways that limit the physical damage of flooding on homes and businesses, and speed up their recovery.
> After 5 years – an environment where it is standard practice for properties at high flood risk to be made resilient.
The Report’s recommendations are:
> Further exploration of whether Building Regulations can be better used to encourage flood resistant and resilient construction.
> Flood Re (see below) to provide the evidence over time needed to understand how householders and insurers can be supported, and potentially incentivised by Flood Re in the future, to manage the risk of flooding and reduce the cost of claims through resilience and other measures.
> Rigorous independent standards with proper certification processes for flood products and the installation of them.
> An independently run on-line information portal and data warehouse that properly informs householders and small businesses about what to do to make their properties resilient to flooding.
> A strong partnership between insurers, surveyors, the legal profession, materials producers and the government, to encourage and enable the take up of flood resilient measures and more flood resilient behaviour by householders and small businesses, including preparation for future flood events.
Property level resilience
Property Level Resilience (PLR) measures include installing flood doors, flood barriers, air brick covers, pointing or waterproofing brickwork, installing non-return valves and moving vulnerable features such as utility meters and electrical sockets to a more suitable height.
A package of measures should prevent water entering a house or should minimise the impact if water enters the house, speeding up the recovery process. Sometimes the water should be let in; for floods over 60cm depth, or of prolonged duration, attempting to keep the water out can cause serious structural damage due to the unequal water pressure either side of the walls.
As mentioned above, the typical range of measures have a cost-benefit ratio in excess of £5 for every £1 invested in terms of reduced damages.
The take up of flood resilient measures seems to be low because of a lack of information or incentive for property owners. Sometimes property owners don’t know they are at risk of flooding, or think that a flood event they have just had is a one-off event. Many people also assume that only the authorities can manage flood risk and very few are aware of the grant schemes in place to help fund flood resilience measures.
There are many instances where property flood resilience measures have had the desired positive impact. The Action Plan gives details of two case studies where buildings became quickly operational again after flooding because flood resilient measures were used:
> The home owners of one property in Peckham had twice previously endured restoration and reinstatement programmes of over 9 months, but a few flood resilient measures prior to the Christmas 2013 floods ensured only one day of major disruption and no resulting insurance claim.
> After floods in 2007 a retail business moved all of its electrics higher up the walls and introduced over-head power cables for the machinery. Stock can now be fork-lifted up onto a new mezzanine level as well, so subsequent flood events have not caused major disruption.
Cost effective measures
Academic research has found flood protection measures to be cost effective*:
“While resilient repairs were found to be more expensive than traditional methods (average 34% higher) they were found to significantly reduce the repair costs assuming a subsequent flood were to take place. Resilient flood mitigation measures… will help in limiting the cost of repairs up to as much as 73 per cent for properties with a 20 per cent annual chance of flooding… the up-front investment would be recovered following a single subsequent flood event.”
Many flood resilience measures are very cost effective and would add little to the cost of a property reinstatement, but save thousands on the next flood event. The ABI and National Flood Forum have issued a Flood Resilient Homes leaflet with figures that show how little extra needs to be spent during a property reinstatement to make a home more flood resilient.
For example, for a three bedroom semi-detached house, mounting a boiler on a wall above flood level would cost an extra £150 but would save about £700 on the next flood event. Replacing mineral insulation within walls with closed cell insulation would cost £270 more, but would save £360 next time the property floods. Moving electrics well above flood levels would cost about £375 more but save £425.
The ABI and CILA have produced a document called Flood resilience and resistance factsheet for insurers and loss adjusters. It provides underwriters, claims-handlers, and loss adjusters with a guide to flood resilience and improving flood protection at an individual property level. It states:
“Some flood-resilient measures do not cost much more than like-for-like, including moving services (electrics, boilers, and service-meters) well above likely flood level, and could be used for the repair of all properties that have been flooded. This technique will typically cost less than £1,000 extra for the repair, and could save more than £2,500 after the next flood.”
Other measures are more costly than conventional repair, but will often pay for themselves after a single flood because the extra cost of installing flood resilience may be more than offset by the damage costs saved after the next flood. Examples include:
> Replacing gypsum plaster with more water-resistant material, such as lime plaster or cement render and renovating plaster.
> Installing water-resistant doors and window-frames (e.g. plastic or waxed good-quality hardwood, where appropriate).
> Replacing the usual chipboard kitchen or bathroom units with plastic or steel equivalents (where these are appropriate and cost-effective).
> Replacing timber floors with solid concrete (only where appropriate), using tiles and a water-proof membrane to prevent water penetration into concrete.
> Removing patio doors and installing conventional doors and windows with brickwork construction underneath.
> Installing one-way valves into drainage pipes to prevent sewage backing up into the house
Impact on insurers
Obviously the increasing number of floods and their related costs are a challenge for the insurance industry, a challenge that isn’t just a result of climate change. More properties are being built on flood plains and more gardens and town centres are being concreted over, removing the natural soak-aways that existed and over-loading the drains and sewer systems.
A recent article in The Telegraph has criticised insurers for failing to make properties flood-proof when rebuilding them for flooded homeowners. The article has drawn attention to the fact that insurers reinstate a property to its pre claim condition. But “this often means merely replacing out-of-date or unsuitable fittings or buildings – the defects that led the properties to being vulnerable in the first place”. Paul Cobbing, head of charity the National Flood Forum, said “We should be reducing risk with rebuilding. Insurance companies need to be more flexible. Small things, like installing different cavity wall insulation and plug sockets, would reduce costs for everyone.”
The Property Flood Resilience Action Plan includes a survey carried out by BIBA which also provides evidence that insurers are not tackling this problem. In response to the questions about whether the insurers they use recognise any particular certification or standard for resilience measures or the firms installing resilience measures, 95% answered No.
The survey suggested that some insurers were willing to offer lower excesses or premiums if certain flood resilience measures were put into a property, but surprisingly almost 30% answered No to the question “would your insurer allow resilient/resistant repairs after a claim if it was cost neutral?” 48% answered No to the question “would your insurer allow resilient/resistant repairs after a claim if they were more expensive to repair that way?”
There is plenty of evidence to suggest that installing flood resilience measures at the property reinstatement phase is cost effective over the short to medium term. There is a lot of information available on how to make homes more flood resilient, and costings are available. And yet the insurance industry is not encouraging the installation of flood resilience measures.
The typical flood experience
We have been involved in many flood events over the years, and have seen a familiar pattern of events take place. The latest flood event in December 2015 gave us further insight into the issues that arise during a flood claim.
One case in particular demonstrates the issues. Our Cipher Professional subsidiary was assigned a substantial tender for a flood claim. The tender was authorised on 20th April 2016 and a pre-start visit took place on 26th April between all the parties concerned, including the home owner. The works were completed on schedule by 15th August and the customers moved back into their home.
The home owners were delighted with the completed works, in fact the surveyors remarked it was an outstanding performance. However this flood claim, as with many other claims that we regularly encounter, suffered from supply chain fragmentation. For the customer, their engagement with many different parties, aiming to support and help, was overwhelming and confusing.
The delay from incident to strip out was excessive and arguably allowed moisture to further penetrate into the fabric of building, making it more time consuming and more expensive to dry out and reinstate.
The sequence of events took too long. By splitting the drying from the strip out works and from the reinstatement works, weeks of unnecessary delay were added into the claim. If the drying had been given to the same contractor as the strip out and reinstatement works, we know through experience that at least one month would have been saved through fewer touch points, better communication and reduced time and cost, by overlapping the drying and reinstatement phases.
As often happens in a surge event interim payment requests were not processed quickly enough. A request on 30th June wasn’t paid until mid-August, placing strain on the contractor’s cashflow and their ability to meet the project timelines.
Another area where things could definitely have been improved is flood resilience planning. The home owners decided that they wanted to make their home more flood resilient for the future. But it was only during the reinstatement works that they realised this was possible.
The tendered scope of works was prepared on a like-for-like basis. No obvious thought was given to flood resilience measures by anyone involved in the claim.
The home owners decided they wanted flood doors in their property. To facilitate this the insurer offered a cash settlement for the doors from the scope of works. To gain additional funds it was then left to the home owners to apply to the council for a £5,000 grant, which added to the delay and stress. Not only did the home owner have to make up the shortfall in extra cost for the flood doors, but the grant took time to come through meaning the doors weren’t installed until after the reinstatement works were completed.
There were other flood resilience measures that could have been done such as raising sockets up the wall. Surely such measures would be sensible in a property situated near a river and a canal that has flooded twice and is likely to do so again, causing more indemnity expense for the insurer and stress for the customer.
This case is a good example of the disjointed approach that the recently published Property Flood Resilience Action Plan refers to (also known as the Bonfield Report). The Bonfield Report says:
> there is a disconnect between insurance reinstatement and resilient repair of properties…. loss adjusters and builders do not understand the benefits of resilient measures
> it is not clear that the insurance industry values property level resilience or incentivising people to have it.
Our experience certainly supports these statements and we are keen to work with insurers and loss adjusters to develop a coordinated and joined-up approach to flood claims, one that reinstates a property whilst also making it more resilient to floods in the future.
As the Bonfield Report says, a coordinated plan is needed with a complete change in attitude by everyone involved in property claims. But should the insurers be picking up the bill for the flood resilience measures as suggested by The Telegraph and the National Flood Forum?
Flood Re is essentially a reinsurance company, which means it enables insurance companies to insure themselves against losses because of flooding. Unlike other reinsurance companies it is a not-for-profit fund, owned and managed by the insurance industry, and it has been designed to address a specific issue for a specific period. It’s also publicly accountable.
Flood Re’s aim is to promote the availability and affordability of flood insurance to those who own and live in properties in flood risk areas. Establishing it required Government legislation and it is the first scheme of its kind anywhere in the world.
The insurance industry itself paid the set up costs of Flood Re, which were over £20 million. So already the insurance industry has spent money to help home owners at risk of flooding. Individual insurers are hoping to save money on future flood claims by pooling risk.
You could argue that insurers achieve the same result by paying for flood resilient measures when reinstating a property – a small expense up front should save money in the long run. But where does this stop? You could argue that by paying for a poorly maintained roof to be repaired the insurer will save money on storm claims in the long run too. Or how about replacing dishwashers for home owners every seven years to prevent escape of water claims in the future? Or paying for burglar alarms to be fitted to reduce theft claims? Where does an insurer draw the line? How do you balance reducing indemnity spend in the future with encouraging home owners to look after their homes and minimise the risk of claims themselves? In this highly competitive industry how do you stop a home owner from simply switching insurer at renewal time once the insurer has paid for improvements or flood resilience measures? No wonder most insurers are unwilling to pay the extra for property resilience measures.
Home ownership comes with obligations, not least to preserve the home. A home owner is responsible for maintaining his home and the insurer is responsible for reinstating a home back to its pre-claim condition. The problem with flood risk homes is that they are usually at risk through no fault of the home owner – either the home was built in the wrong place, climate change has caused more rain or the Government has stopped investing in flood defences.
Communication and behavior change
The Action Plan does not say that insurers should be funding flood resilience measures. However it does say that those involved in property insurance need to do more to help home owners in flood risk properties. The Report has identified changes in behaviour that are needed to improve the uptake of property level resistance. Not surprisingly, much of this behavioural change is needed in the insurance industry:
> Recovery – there is a disconnect between insurance reinstatement and resilient repair of properties. The report says that loss adjusters and builders do not understand the benefits of resilient measures, and that immediately after a flood, parties involved are not in a position to think about resilience measures.
> Insurance industry buy-in – it is not clear that the insurance industry values property level resilience or incentivising people to have it. This is supported by the results of the BIBA survey. There are questions over its effectiveness amongst insurers and builders, and this needs to be addressed.
> Community understanding – if flood resilience measures were viewed as a “social norm” similar to smoke detectors for example, flood resilience measures would be more common.
In our view, once a flood has happened, a better service and more support needs to be given to home owners from the start. From the moment a surveyor or loss adjuster arrives on site, the home owner should be given information about how to reduce flood risk in the future – from the range of property flood resilience measures available to the grants that can be secured.
The reinstatement works should include planning for the installation of flood resilience measures whether funded by the insurer or not. And the claims management process should include support and help on securing the appropriate grants and providing access to experts who can advise on the best measures to be put in place.
And even before a flood takes place insurers should be contacting home owners at risk of flooding to offer advice and support to minimise the impact of floods in the future.
A complete property flood resilience solution
Insurers need to find a way to improve the uptake of property flood resilience measures by home owners. The MA Group is keen to work with surveyors, loss adjusters, contractors and insurance clients to help improve the uptake amongst customers. We think that the following actions and behavioural changes are needed:
> Early identification of a need at the surveying, or even FNOL stage,
> Training for claims handlers, contractors, surveyors and loss adjusters,
> Simple risk analysis to understand the risks of any individual property flooding again,
> Access to accredited flood resilience materials and installers,
> Information for home owners on available grants and support in applying for them at the start of the claim,
> Avoidance of further supply chain fragmentation,
> Better surge planning to ensure that all parties are capable of delivering the proposition without affecting customer service,
> Strong co-ordination of all parties involved with collaboration designed to create a seamless flood reinstatement and resilience measures installation process.
If you would like to work with us on delivering a new flood claims process to your customers please get in touch.
We can provide a completely joined up service for flood claims and can build in managing flood resilience measures all through the supply chain.
Our validation and surveying company Virtus Validations, can identify the need for flood resilience measures at the first visit on site. Our surveying business has the ability to provide home owners with information about flood resilience measures and grants at the surveying stage so all parties can start to plan effectively.
Dan Ashton, MD of Virtus Validations says:
“As a new business we are perfectly placed to try new things. We look forward to supporting our clients and their customers who want to install flood resilience measures and can work with the contractors to develop a scope of works that accommodates the home owner’s plans.”
Our Cipher Professional team can project manage the more complex flood claims and ensure that installation of flood resilience measures are incorporated into the schedule of works and planning, working with contractors, loss adjusters and insurers.
Neil Foster, Head of Cipher Professional, says:
“Tailored repair schemes can be developed to effectively manage flood claims and flood resilience measures. Shared surge and capacity planning as well as project managed service solutions of all policy aspects will ensure consistency for all clients and customers”
*Rotimi Joseph, David Proverbs, Jessica Lamond, Peter Wassell, (2011) “An analysis of the costs of resilient reinstatement of flood affected properties: A case study of the 2009 flood event in Cockermouth”, Structural Survey, Vol. 29 Issue: 4, pp.279 – 293.