The transport of products and goods and the risks to storage have always been determined by the geography, more specifically the topography, of a particular location.
The physical location in space by businesses involved in the movement of goods, are determined by market factors such as population and demand, such that the physical risk location is usually found at the most appropriate place close to the market and main communication routes, to satisfy this demand.
For example, Warehouses have traditionally been built next to water courses such as rivers or canals to supply hinterlands and regions, or around ports and ocean harbours for shipping imports and exports temporary storage.
After industrialisation railway hubs then became surrounded with storage and shipping facilities for internal regional supply. Often the largest existing town, built on a river, would become the central storage centre.
In more recent years large warehousing and distribution centres have also grown up around airports or near motorway intersections, which both require large flat expanses of land.
Many towns have often grown in response to supplying these warehousing functions and include businesses that rely upon the physical presence of the distributors.
It is these very historical physical locations that the distribution process requires, that are now threatening the availability and costs of business insurance for enterprises such as warehouses, wholesalers and storage facilities, due to the increased frequency of recent extreme weather or geophysical events.
In the UK over 75% of warehouses and industrial centres or parks, are built on river floodplains or coastal locations. These properties are currently at a much higher risk of serious water damage and flooding, on a far more frequent scale, than was previously calculated by underwriters.
Over the last ten years large losses have been suffered by insurance companies that underwrite warehouses close to rivers, the length and breadth of the country.
Since the 2002 Glasgow floods, serious loss to stored goods and transport running into the hundreds of millions of pounds, has occurred at places as diverse as Carlisle, Cumbria, Kent, Somerset, Severn Valley, Tewkesbury, Thames Valley, Sheffield, Northern Ireland, East Yorkshire, North Wales and The Midlands, to name just a few of the larger floods.
This high level of loss and claims has inevitably led to more on site risk assessment surveys before confirming cover, less choice of provider, inflationary premiums and more policy clauses and exclusions to cover.
Dependant businesses who supply or are supplied by the suppliers warehouses locally, have also had the costs of insurance increase, both by perhaps being flooded themselves, or seeing the costs of their business interruption and loss of profits cover increase, due to more claims for failures in the supply chain caused by flooding.
Moving forward, both Insurance policy holders and those providing the cover need to adapt in order to manage and reduce flooding risks and keep policy premiums at a reasonable cost level.
In order to achieve this many insurance companies will now insist on more active risk management. For example, policies may include wordings that all goods stored in an 'at risk' warehouse, must be on water resistance dexion type shelving at a certain height above the maximum expected flood level as determined by the Government hydrological flood risk map. Or that all motor fleets at risk must be moved to safer storage areas on higher ground.
These types of clauses whilst enabling warehouse cover to be issued, have led to increased business costs to implement.
Many properties nationwide are at risk due to the nature of local planning decisions and water management policies. Although the UK Government has committed further spending to flood protection schemes, the impact to date has been small.
Whilst flood risk in the UK, unlike in the USA, has yet to become a fundamental risk controlled by Government, the failure of the UK insurance industry to provide adequate cover for domestics risks such as home insurance for a large and growing proportion of the population, coupled with rising business insurance costs and more frequent extreme weather, may soon force the Government to offer some type of national flood insurance program, alongside its responsibility to manage runoff.
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