While damage to homes often receives media coverage in the event of a major flood, businesses are just as at risk when a weather event of this nature happens. So it pays to understand how insurance responds in the event of a flood or storm. Let's look at flood first.
After a number of catastrophic floods in Australia over the past decade, in particular in Queensland, many steps have been put in place to reduce this risk in flood-prone towns. For instance, Queensland’s Central Highland Regional Council now has a comprehensive flood management plan.
This initiative means in towns such as Emerald, where the flood risk was extremely high and the consequences of such an event are catastrophic, steps are being taken to help ensure should a serious flood occur, damage to the town and its businesses will be more limited than in the past. In 2011, Emerald suffered a catastrophic flood that destroyed 1,000 homes and floored 95 per cent of its businesses.
“Serious floods aside, there’s a difference in the way insurers treat claims related to storm water and floodwater”
Serious floods aside, there’s a difference in the way insurers treat claims related to storm water and floodwater. As such, it’s important small businesses understand this difference should they experience either of these events. This differential is critical for all businesses to appreciate – not just those in flood-prone areas.
All property insurance policies usually provide cover for storm damage. But they don’t all provide cover for flood-related damage. This cover differs from policy to policy and it’s important for businesses to check their policy so they are aware whether their policy includes this cover, especially if the firm is in a flood-prone area. After a flood or storm, the insurer will assess how the water comes into the building when deciding whether the event was one or the other.
It will rely on the definition of flood contained in the Insurance Contracts Regulations 2017. In the regulations , a flood is defined as including water that escapes from the confines of a body of water such as a lake or creek. This is in contrast to storm water runoff, which does not necessarily have to involve a body of water.
“Damage done by floodwater and storm water is covered if you have flood insurance,” explains Michael White, Steadfast’s broker technical manager.
“If you don't have flood insurance, water that comes from storm water runoff is often covered, but not flood water,” he adds.
Businesses should consider their individual circumstances when assessing whether they need flood cover. It seems a good idea to take out a policy should the business be located in a flood-prone area, for instance those in low-lying areas with a very high exposure to the risk of flood. But if the firm is located on the top of a hill, or in an area where flood risk is low, this type of cover may not be a priority.
If you are starting a business, one of the factors to take into consideration should be the likelihood of a flood affecting the company over time. It’s usually relatively easy to make an assessment about whether there have been floods in the area previously when evaluating this risk.
No matter if your business is new or established, it pays to assess how weather events may affect it and ensure the appropriate cover is in place.
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