Rising tithes: Dealing with premium increases

We’ve witnessed dramatic changes in commercial property premiums recently. In the first blog of the Autumn Campaign, we explore what is driving the change for flood coverage and what you can do when quotes come in higher than expected.

Why do premium increases happen?

Premium loading is a broad term that indicates price increases based on various factors. Life and health insurance plans provide good examples. When the health status of the policyholder changes the insurer adjusts the price to reflect the risk factors.

Rising premiums are common in life and health insurance – if insurers view your risk has changed, the price will be adjusted to reflect that.

Insurers’ view of flood risk is based on many factors. Climate change, urbanisation and changing weather patterns all contribute to flood models which change and evolve over time. As the models change – prices go up and down accordingly. Recent Met Office data has consistently indicated the increasing frequency of extreme weather – which is factored into flood premiums.

Even if a property’s flood risk is not judged to have changed, premiums can still increase. Increases in the sum insured can result in changes to the rating calculation. This might be the result of clients acquiring high value equipment or increases in the business interruption values needed.

Current factors affecting commercial premiums

The main reason we have observed for flood premium increases this year is the increase in rebuild costs. The Royal Institute of Chartered Surveyors suggest that material costs may increase as much as 17.6% this year. Insurers need to consider these rising costs, as they will result in far higher claim values.

Rising rebuild costs are one of the leading causes for premium loading at the moment
A predicted 17.6% rise in material costs is pushing up the cost of rebuild in the event of a flood – meaning insurers are increasing premiums to compensate.

Signs that client flood premiums are high

If your clients are facing rapidly increasing premiums, then they may be experiencing premium loading. Brokers we speak to also observe rising excesses and a decreasing number of insurers willing to quote on the risk. Often it’s a combination of factors that indicate premium loading.

How FloodFlash can help

It can be useful to ask the underwriter what the price would be without flood.
Some may refuse unless there is a guarantee of flood cover in place – that’s where FloodFlash comes in. Due to the simplicity of parametric insurance, a FloodFlash policy is often cheaper than a loaded premium from the primary insurer. Using FloodFlash to fill the exposure can save clients thousands of pounds.

Case Study – Residential management company in Reading

After a rebuild cost assessment prompted significant increases in their sums insured, a Reading-based residential management company was facing unaffordable premiums.

With only one broker willing to provide cover including flood, the broker considered the cost of cover excluding flood. They had never flooded before, but due to their proximity to a major river, they were at risk from river flooding. Excluding flood, the premium fell significantly, with more insurers offering terms. However, the management company still wanted to have protection in the event of a flood. FloodFlash proved the perfect fit.

Blocks of flats will be hit hard by rising rebuild costs. A FloodFlash policy can help make cover more affordable.

Traditional flood insurance considers the complete sums insured, meaning when the sums insured rise, the premium will rise too. However, this doesn’t consider the reality of how a flood may impact a property. In this case, the group of properties had no accommodation on the ground floor and had a step leading to the entrance. The company considered the cover they would need at different scales of flooding, from replacing the carpets in the entrance hall to providing alternative accommodation to their residents. They landed on cover that they were happy with and saved over 30% on their total premium.

This blog is part of the FloodFlash Autumn Campaign 2022. If you’e a FloodFlash broker, your broker success representative will be in touch shortly with exclusive materials. Not a FloodFlash broker? You may not have access to all of the content but we’ll do our best to help. Get in touch with chris@floodflash.co to get started.