Manufacturing companies located in Eastern Europe and the Balkans are exposed to floods, which are very common natural disasters in these countries.
The possibility of a river near the factory bursting its banks, the average flow velocity, the duration of rainfall and the rate at which the water recedes all pose very real threats that can disrupt operations and the entire supply chain, even for several weeks.
Calculating elevation data, identifying the country’s risk maps, carrying out up-to-date valuations of buildings, machinery and stock, and conducting on-site inspections of company premises are effective ways of reducing risks and insurance premiums.
It is essential to consult specialists in the field before a flood brings our business to its knees.
1. Risk of insurance cover gap for damage caused by flooding and inundation.
When referring to medium-sized production sites, particularly if they are located near reservoirs or watercourses or in geographical areas at risk of hydrogeological hazards – such as the entire Visegrad area – it is possible that the fire insurance policy may exclude compensation for damage caused by flooding and inundation.
It is therefore advisable to check carefully whether you are insured against these two specific natural disasters.
I should point out that damage caused by flooding is sometimes included in the fire insurance policy but with significant compensation limits (20–50 per cent of the sum insured).
In other cases, compensation for such damage may indeed be covered in full but separately, through policies distinct from the fire insurance policy, the terms and conditions of which must be negotiated with the technical department of the insurance company.
The prospect of significant premium increases, the presence of compensation limits, excesses and high deductibles mean that insurance cover against floods may be offered as a standalone product, granted – subject to a technical analysis of the hydrogeological risk – through the taking out of a policy separate from the fire insurance policy.
2. Financial risk arising from production stoppages
In addition to property damage, a major flood can bring production to a standstill for weeks, if not months.
It is therefore highly advisable to safeguard the company’s finances through specific insurance cover designed to protect both the company’s accounts and its relationships with suppliers.
Let’s take an example.
The loading and unloading areas in front of the factory, if situated below road level, can be among the most critical areas in terms of water accumulation.
In the event of a flood, any malfunction of the pumping system could cause significant flooding which, if not cleared quickly, could prevent our suppliers’ vehicles from accessing the delivery areas for the finished product.
3. Risk of underinsurance
Both property damage and business interruption losses can be estimated before a claim arises.
In most cases, companies engage loss adjusters – who are recognised by the insurance companies in the country where our business is located and have proven experience – specialising in determining the reconstruction and replacement values of the premises and machinery.
Should a flood or inundation affect our business, where a prior valuation exists, the claims adjuster will be able to rely on the accuracy of the valuation and the adequacy of the insured values.
In this way, we can shorten the time taken to receive compensation, avert the dangerous consequences of underinsuring business assets and avoid troublesome disputes during the claims settlement process.
4. The technical inspection: the role of the insurance adviser with local expertise
Checking whether we are actually insured against the risk of flooding is important but often not enough.
It is equally important to update the reconstruction and replacement values of business assets and to arrange a technical inspection at the premises.
During the site inspection, we can identify critical production areas (where plant, equipment and goods ready for delivery are located) that are at risk from natural disasters and are strategic for the smooth running of manufacturing operations.
Also during the visit, specific measures can be defined to avert a flood emergency, such as carrying out a topographical survey of the production areas and those surrounding the factory.
These procedures, to be incorporated into the company’s emergency plan, will help minimise damage in the event of increasingly frequent and devastating floods.
For further information, please see here.
In conclusion.
Before a flood or inundation occurs, it is always best to contact insurance advisers with local expertise.
They are the ones who help us to update our insurance policies, accurately calculate the financial consequences of production stoppages, and identify the areas of risk within our factory – areas that are all too often unknown or overlooked.