Protecting your business from a flood
Survival stories and how to save your business from disaster
It’s been a devastating summer for many businesses. As those hit tell their stories and take stock, now could be the time to examine your position.
It took 10 minutes for the water to get to four feet. It came through like a tidal wave, destroying everything in its path – this is not Hollywood, but Kettering, home of Pegasus Software, just one of the thousands of small and medium-sized businesses that suddenly found themselves coping with devastation after this summer’s floods.
In June, the country gaped as cities in Yorkshire and areas of Northern Ireland were struck by flash flooding. In a matter of weeks, the floods had spread to the Midlands, Gloucestershire and Worcestershire, Oxfordshire, Berkshire and South Wales. All manner of firms were affected, from high street retailers to huge factories. “In Sheffield, the really severe effect was felt largely by manufacturing firms,” notes Helen Rana, policy and representation officer at the Sheffield Chambers of Commerce.
The business effect
Sheffield-based Glass Systems was one such firm, after six feet of water destroyed the business’ entire two-building premises. “Our insurance claim is now between £3.5 and £4m,” says director Jacqueline Wallis – a huge amount of damage for a husband-and-wife firm with 25 staff. In other parts of the country, the tourism trade was most damaged. Gary Woodman, policy executive at Hereford and Worcestershire Chambers of Commerce, encapsulates the scale of the problem: “For many businesses, it’s like foot and mouth all over again.” Initially, reactions across the country were relatively quick. Regional development agencies all made funds of up to £2,500 available to firms with fewer than 250 employees. Help lines were set up, government lobbying by business groups began. But, perhaps due to the scale of the problem, practical support for many flooded businesses has been hard to come by. Even the funding could only do so much. Chairman of Sheffield business Rubber Safety and Hygiene, Stewart Hodgskin, explains: “For a firm of our size, £2,500 isn’t that much compared to our £60,000 a month wage bill.” Thousands of businesses therefore ended up relying on prompt reactions of insurance companies for survival. But preparations were in place. Paul Emptage, head of loss adjusting services at More Than Business, explains: “I have an emergency response team on standby 24/7, and a dedicated supply chain restoration service. It’s been a busy time, but certainly we were prepared.”
Making big claims
The estimated 10,500 claims made by businesses have ranged from “tens of millions, for instances such as steel mills, large shopping centres or distribution warehouses,” says Rick Hudson of Brighter Business, to straightforward claims of a few thousand. But, adds Emptage, “a usual claim in the small business sector would average about £7,000 for damage plus business interruption. In this event we are seeing claims far in excess of that.” The number of insurance claims is now more than 50,000 and rising. So cashflow problems for businesses waiting to be able to claim from their insurance company have been very real. Wallis says: “My initial reaction was ‘well, we’re insured, what are we worrying about?’ but I never imagined the true complexity of the problems.” As you may well imagine, it is loss of business, rather than material damage, that has caused most of the concern. Although business interruption is generally covered in standard insurance packages, cashflow problems and anxieties over disappearing customers become more pressing the longer the situation goes on. Wallis explains: “We thought in three months we’d be back up and running, but it just seems to get worse and worse. We had to rebuild our business in a month. Absolutely nothing survived; we’re even waiting to hear if the buildings are condemned, so all our growth plans are on hold. We’re a high-performing company, and our infrastructure was completely dedicated to quality. How can insurance cover loss of reputation?” Many businesses were forced to outsource their manufacturing capabilities, relying on suppliers to fulfil contracts, and consequently losing profits. Glass Systems is working in temporary cabins, harsh conditions that have already led to two employees leaving. The firm is considering buying new premises, but it will be weeks or months before businesses such as this are back on track.
Woodman gives another example: “One of our region’s major food manufacturers, a well-known brand of crisps, lost 40% of its crops. It could buy in, but one of its selling points is that it uses local products. “So the floods are receding and the dramatic impact has gone, but indirect effects are still very real. There’s rebuilding issues here. And businesses need more support than just cash, we need something smarter.” An example of such support came in the form of HMRC flexibility, when revenue and customs said it would waive interest and surcharges on tax paid late because of the floods. It is also able to defer collection of taxes, agree instalment arrangements or suspend debt collection proceedings. The worry now for all businesses is that this event is not a one-off. The words ‘climate change’ have taken on a new connotation for small business owners, even those who aren’t located near a river. As Hudson explains, “Most of our claims weren’t as a result of river flooding – businesses near rivers were more used to it. But many firms just couldn’t cope with the amount of rainfall; premises with features such as flat roofs, or guttering that couldn’t cope.” The advice is to insure well, to maintain guttering, and to be careful where stock is stored. So will premiums be rising? “The insurance industry thinks the number of unexpected events will increase. Premiums will go up,” says Hudson. Two UK insurers have already hiked home premiums by 10%, and others look set to follow. As businesses get back on their feet in the flood-hit areas, it’s worth asking if yours would be able to do the same. But Wallis in Sheffield remains optimistic: “If you’ve set up your own company, you’re probably the kind of person that takes on challenges anyway. Running business is often about survival. Floods or no floods, the drive to succeed is still there.”
Getting your insurance policy watertight is about getting the basics right, says Paul Emptage, of More Than Business. You need premises insurance for the building, fixtures and fittings, and cover for machinery and stock. Many companies weren’t actually flooded, but suffered loss of utilities, suppliers and so on, and they claimed on business interruption cover for losses such as these.
A professional valuation, for example through an insurance broker, can help ensure you’re adequately covered in all these areas. “Get frequent reviews, particularly during acquisitions or disposals,” says Emptage. “And always get a full review at renewals.” Andrew Collinson, at Brighter Business, says: “Insurance is described as a grudge purchase; there’s the temptation to get away with the minimum. But the consequences can be very serious indeed.”
Kathryne Jobling: Pegasus Software
On June 14, Northamptonshire-based business Pegasus Software was flooded after a brook burst its banks, with “water running down a nearby hill like a river”, according to operations director Kathryne Jobling. Four feet of water “moved furniture, lifted the floors” and destroyed 10 servers, 80 computers, 40 desks and chairs and all the stock. The 81 staff had to be rescued in dinghies by the fire brigade. But the business was closed for only 24 hours, as a ‘war room’ was set up in a nearby hotel, and some operations were moved to another building. It will be January before the building is completely habitable, and utilities such as electricity and heating can be installed, but staff are now using the upstairs floor. Total damage “would easily be a million, though we haven’t worked it out yet”, says Jobling, but the business has kept on track with sales, with only five days when they couldn’t be processed. “The insurance company has been great; they’d rather we bought the equipment we needed to carry on and seem more concerned about loss-of-business claims.” A flood expert has suggested putting up a perimeter wall and flood doors and a ground-floor redesign.
Robin Musgrove Wethey: The Pantile Bridal Group
It was 5.30pm on a Friday when Robin Musgrove Wethey heard that the wedding dresses in one of his six shops were under three feet of water. The shop, based in Henley-in-Arden, Warwickshire, was flooded by the drainage system and an overflowing brook, leading to £250,000 worth of damage. “The ruined gowns were ready to go out to the brides,” says Musgrove Wethey. “Luckily designers and suppliers rallied round, working through the night to re-do them.” Also damaged were fixtures, fittings, furniture and equipment. “The biggest thing is loss of business; we take £1,000 a day, and since the floods we’ve taken nothing.” It will be two months before they are operating normally. “Obviously, if you don’t have cash coming in, it becomes very difficult to pay the bills. That’s where good insurance comes in – we’ve been lucky with Royal & Sun Alliance.” Musgrove Wethey describes the impact on the business of this one flood as “huge”. “It will take us two years to reach our pre-flood turnover levels again. And our competitors are really making hay, because we can’t sell anything.” “It’s been devastation really. When you see what’s happened to all the effort we’ve all invested, it’s enough to reduce you to tears.”
Stewart Hodgskin: Rubber Safety and Hygiene
The floods started dramatically at Rubber Safety and Hygiene, when the 13 staff were airlifted out. They were fine – but not the building. Says chairman Stewart Hodgskin: “Around £100,000 of machinery in the basement was ruined by eight feet of water.” On the ground floor, furniture and 60% of the stock was destroyed, with damage totalling around £500,000. The firm has another factory nearby, and they moved what they could save into makeshift offices. “Our customers were our priority,” says Hodgskin, “so we’ve outsourced what we can’t do. But we’re not making a profit on it. Insurance people are asking for documentation before paying out, so we’re having cashflow issues.” The company has kept all its staff, but Hodgskin estimates it will be eight weeks before they get back into their premises. But there is a bright side – the help they’ve received from the business community. “The bond between Sheffield businesses is brilliant.”