Flood insurance claims: Practical tips and mitigation strategies
The Bureau of Meteorology officially declared La Niña late last year, signalling higher than average rainfalls and a heightened risk of flooding. (Marsh’s full La Niña Briefing Paper is available here.)
As we experience a once in a century extreme rain event with widespread flooding unfolding across New South Wales and some parts of Queensland, many businesses are assessing their own loss and damage, and beginning to put together an insurance claim.
These can be some of the most stressful and critical moments for businesses. Below are practical tips that you should consider implementing immediately to help you better understand flood insurance coverage and get your claim reviewed, processed and paid more quickly, subject to your insurer accepting the claim.
Are you insured for flood risk?
There are technical considerations and nuances within individual policy wordings – particularly around flood versus weather events – that can determine whether or not you are covered for a specific loss. It is important to understand your property policy’s definitions, exclusions, and how the policy may be triggered and potentially respond to damage caused by flood.
One important consideration is whether the damage is caused by an insured peril or an excluded peril. For example, rainwater inundation is typically a covered peril under a property policy, but in some cases, flood can be excluded.
A common flood exclusion would typically exclude cover for physical loss, destruction or damage occasioned by or happening through “Flood”, where “Flood” is defined as “the inundation of normally dry land by water escaping or released from the normal confines of any natural watercourse or lake (whether or not altered or modified), or of any reservoir, canal or dam.”
It’s important to consider such exclusions in light of the general principals of insurance and policy interpretation. For example, if there are two perils that equally cause a loss, i.e. one that is specifically covered (eg. rainwater from a storm) and one that is specifically excluded (eg. flood), then the loss may not be covered in part or at all.
Top 11 claims tips
To better ensure a smooth flood insurance claims process and to assist insurers and loss adjusters as they work through an increasing volume of flood claims over the coming weeks, we recommend consideration of the following key points and actions:
1. Record what happened. Remember that detail matters. The quality of claim presentation and supporting documentation can be critical to a successful settlement. Ensure that all documentation passed to insurers is accurate. Fully document via video and/or photo the sequencing if possible and damage to property, plant and equipment. To help expedite your claim, at a minimum you should provide the following details to the insurer:
- Policy number
- Name of insured on policy
- Insured contact details
- Location(s) of loss
- Extent of damage (including estimated $ amount)
- Further action (i.e do you require an adjuster/builder/restoration specialist, or do you have your own repairer?)
2. Identify the source of the damage. The onus is on you to fully document and evidence your claim. Collect reports, drawings and video/photos as appropriate to adequately establish the source and nature of damage. In the event of a loss, consider available evidence (eg. hydrological) before categorising a loss as “flood”. You are responsible for proving your claims.
3. Have a dedicated person in the business to manage the claim. Businesses with dedicated person/teams set up to specifically deal with claims, particularly where there are large complicated losses, are generally able to achieve quicker outcomes. This can also enable speeding up the flow of information to insurers and their loss adjusters.
4. Appoint an independent claims advocate and/or claims preparer from the outset. Claims preparers' costs are commonly covered under a property policy (usually with a sub-limit).
5. Know and follow the process. Ensure you understand the claims process and what is required of you. For example, check your policy conditions particularly dates and times for the notification and/or presentation of claims. This information is on your policy documentation. If your documentation is damaged, destroyed or inaccessible, contact your insurer or broker as soon as possible, so they can provide you with these details.
6. Consider flood exclusions, definitions, and insuring clause(s) to understand the scope of cover and under what conditions the policy may respond. For example, is your building/premise covered when operating as a flood shelter? Review and verify property and liability documents to ensure you understand the flood cover in place, deductibles, limits, sub-limits, and excess flood insurance limits, particularly where there are tailored arrangements in place.
7. Keep a record of the costs incurred as you go, so they are easy to produce later, particularly the costs incurred in the early days as you focus on recovery. Also consider whether you may also have business interruption losses which you may also claim, and if so, keep a record of those losses as well.
8. Keep the insurer's experts informed of progress throughout the period of the claim.
9. Do not remove any damaged plant and equipment until viewed in situ by the loss adjuster, unless necessary for example due to safety, to reduce further damage or to recover. If plant and equipment needs to be removed, consider placing this in temporary storage, and do not dispose of it.
10. Conduct a detailed stock take or reconciliation of property, plant and equipment to ascertain damaged assets and loss sustained.
11. Repair or replace considerations – utilise suppliers of damaged assets to assess the extent of the damage, including their recommendations for stabilising or temporarily repairing assets. Advice from suppliers should be provided in writing.
How can you mitigate flood risk effectively?
Flooding can occur quickly. Here are some low-cost, high-impact mitigation strategies to consider that may help to manage flood risk, and in some cases, eliminate the risk entirely:
- Build flood walls / barriers
- Elevate properties and equipment
- Install pump stations
- Anchor structures to foundations
- Create water diversion channels
- Move operations away from rivers, streams, and creeks
- Locate gas mains and electrical shut-offs
- Prevent or reduce floodwater backing up into sewer drains by using plugs or installing flood vents or flood-proof barriers
- Have an emergency communication plan in place
- Have all employee, vendor, and client contact information on hand
- Identify meeting place(s) and time(s) for key employees
- Pre-record a voicemail message and consider redirecting business phones to other lines or services. If conversations are held with customers or suppliers that may be material to claim measurement, it is essential to document them
The impact and extent of damage from the heavy rain will become clearer over the coming weeks and months. As waters continue to flood areas across New South Wales, the risks for you and your supply chain are constantly evolving. It is important to act now and work closely with your broker/risk advisor and insurers to achieve the best possible outcomes.
Claims Spotlight: Queensland joinery business
The client suffered damage to their building, plant and equipment following heavy rain. Although the company mitigated their loss through activating their business continuity plan and operating out of their head office factory interstate, they experienced a significant interruption to their business.
Loss adjusters and insurers determined that the cause of the loss was flood and imposed a flood sub-limit ($250k).
Marsh worked with the client and other experts to review the claim and successfully advocated that the source of the damage was water runoff, not flood. (i.e. the cause was storm damage.) The insurer subsequently reversed their decision, confirmed indemnity and agreed to pay the claim.
In addition to the claim payout for physical damage, we also helped the insured recover Loss of Insurance Gross Profit and Increased and Additional Costs. This included their cost for additional transport, additional overtime (payroll) and temporary relocation of staff in order to continue operating from their alternative facility.
The costs of preparing the claim and advocating on behalf of the insured was included in the claim and recovered from insurers under the Claims Preparation coverage.
Successful turnaround of a declined claim and maximisation of the value of the client’s insurance policy to a value exceeding $5m, which allowed the client to continue to operate and rebuild their business.
To learn about how organisations can prepare for floods and adverse weather events, read Marsh’s La Niña Risk Management and Mitigation Briefing Paper and our blog Where is my La Niña flood risk exposure?
Need help now?
If you have been impacted by the recent floods and need assistance with a claim, please contact your Marsh representative or contact us here.
This document and any recommendations, analysis, or advice provided by Marsh (collectively, the ‘Marsh Analysis’) provide a general overview, are not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Except as may be set forth in an agreement between you and Marsh, Marsh shall have no obligation to update the Marsh Analysis and shall have no liability to you or any other party with regard to the Marsh Analysis. Marsh makes no representation or warranty concerning the application of policy wordings. Insureds should consult their insurance and/or legal advisors regarding specific coverage or claims issues. Insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies.