The floodgates are open: mitigating loss in a changing world

The sight of surging floodwater sweeping through Europe last year, and the resulting devastation caused by homes and businesses in Germany being washed away, was a horrifying example of nature’s ability to wreak havoc.

With climate change creating ever more extreme events, natural catastrophes pose an increasing environmental liability risk to businesses across the continent, and flooding is now cited as one of the biggest threats to public health in the coming years. According to the World Health Organisation: “In the European region, floods are the most common disasters, causing extensive damage and disruption.”

The impact of flooding is not only felt by homeowners but also represents a significant threat to a wide range of businesses, and some of the largest pollution liability claims we see are flood-related. Flood water’s ability to carry and deposit contaminants across large areas of land and impact groundwater can result in pollution-related third-party liability claims and class actions.

This risk is highlighted where a business is on a flood map, so risk management for these organisations in particular needs to be taken very seriously. Emergency plans should include a coordinated response for before, during and after a flood, to help minimise damage, protect health, the business, its reputation and the environment.

Types of losses
Types of losses associated with flooding can vary. Common flood-related claims include mould growth, where working quickly to respond to the aftermath of a flood is key to mitigate impacts and prevent spreading, and loss of containment, where flood waters impacting chemical storage containment areas mobilise chemicals with compromised secondary containment features not able to function properly due to being filled with flood waters.

With the potential release of chemicals, it is essential for businesses to know their inventory and have that information readily available, in order to assist emergency responders to identify and target hazards and areas of concern. Migrating chemicals also have the potential for offsite impacts leading to environmental damage and third-party litigation. It is important to appreciate that flooding could also prevent access to a site or facility. Flood waters might not have directly affected a property but could prevent emergency responders from gaining access.

Learning from the experience of others
In the UK and Europe, countries with previously benign climates are recognising the rising flood risk, with the UK’s Environment Agency predicting that flooding will be a major issue in the months and years to come. We should consider that flood zones might be changing and that frequency and severity may be on the increase, and look to build flood resilience into our infrastructure and businesses to be better prepared for such events.

Drawing upon the expertise of a global team of seasoned underwriters, risk management experts and claims managers, who understand the complex issues arising from flood-related claims, is also crucial. For any business seeking environmental liability insurance, it is essential that they work with their insurance brokers and insurers to identify potential risks early on in the insurance placement process, so that coverage can be tailored appropriately.

It is important that businesses understand the complexities in this area of insurance. This means that certain coverages may have strict reporting requirements that could limit or eliminate coverage if not adhered to, making it particularly important to engage fully with insurers early on, to help to smooth the claims process should the worst happen.

Time is of the essence
Preparation and swift response are key to containing pollution issues that may arise as a result of a flood, as the quality of the response actions during the first hour of an incident occurring can be the difference between a crisis and disaster.

Having an up-to-date emergency response plan outlining what to do in the event of flooding, and the measures that need to be taken to prevent an environmental liability event from occurring, is essential. Disaster planning is good business practice for all businesses – but even more so for those on industrial sites and locations more susceptible to flooding.

If the worst begins to unfold, it is vital that the leadership team is familiar with their emergency plans, and that they regularly test the plan to ensure it remains fit for purpose.

Help is at hand
That said, even the most prepared company with the best-laid plans can suffer significant losses due to flooding and resultant environmental damage. If this should happen, working with a specialist environmental liability insurer with experienced claims managers who understand the complexities of environmental liability incidents will provide an essential safety net to help mitigate the practical, financial and reputational impact that such an event can have on a business.

In the words of Benjamin Franklin, an ounce of prevention is worth a pound of cure.