Brokers have an important role in advising their small business clients about the likely effects of climate change. Caroline Jordan reports
Sir David Attenborough has said climate change is the biggest challenge facing the world and as increasingly extreme weather starts to affect the UK, more of us are sitting up and taking notice. But, are brokers paying enough attention to protecting their small business clients?
Paul Dyer, managing director of Broker Continuity Planning, feels passionate about the difference they could make. But, he says way too many brokers need to pull their heads out of the sand. "They are sleepwalking towards a major catastrophe," he warns.
Dyer initially set up his business to provide fully serviced disaster recovery office space for brokers – who are required under regulation to show they have business continuity plans in place. But he is now offering the facility to the market at large and is currently setting up an arrangement where brokers can provide seats UK-wide on a commission basis.
"Climate change is a reality and it's not just flooding, we're even seeing tornadoes in Britain. If brokers don't wake up to this and start advising their clients, they could even be sued for negligence."
Dyer says IT companies currently dominate the disaster continuity sector. "It should not be sacrosanct. Brokers are the risk managers and should be looking beyond just insurance.
"It is about office space, IT and the use of telephones and simply making sure they can warn clients first about possible flooding. Just giving simple guidance on moving stock to higher levels could make a huge difference."
But, he argues, too many brokers are not pushing the issues enough. "SMEs are the backbone of our economy. In the event of a major disaster, we are risking capitalism – look at the effect Buncefield had and this was a one-off incident.
"And, experts are saying not if a tidal surge hits Essex and then London, but when. It's time for brokers to put the message out. This should be their cause célèbre."
So where can brokers find out more about climate change and specifically how it could affect their commercial clients?
One of their first ports of call could be AXA, since the insurer has a wealth of reading material ready and waiting. Last year, it commissioned a definitive study from Professor David Crichton - Climate change and its effects on small businesses in the UK. It contains a host of facts and figures and can be downloaded from AXA's website along with a small guide aimed at SME policyholders called Preparing for climate change.
Douglas Barnett, AXA's risk control stratgey manager, comments: "Brokers don't have to get technical, this is about real issues and practical help they can offer."
He claims climate change topics should also encourage brokers to review the level of business interruption cover held.
"Brokers need to think about broader issues, such as the impact of climate change on a client's imports if relevant– shipping could be affected, for example. They also need to make business continuity advice far more commonplace."
Kevin Pallet, managing director of broker-only insurer Fusion, says that the best means of dealing with unpredictable changes in the environment is for SMEs to have a full business continuity management programme in place. "One which has been compiled on the basis of thorough analysis of the potential impact extreme weather might have. Brokers have an opportunity to communicate with their clients and prospects to advise them in practical terms about potential issues," he says.
Allianz Cornhill is covering climate change and SMEs at a number of breakfast briefings aimed at brokers this year. It has also produced a risk management guide – Facing up to the risk of flooding. It is also poised to launch a new website, www.riskdirector.co.uk which will provide online risk management support for brokers and their clients – with climate change-related flooding as a key topic.
Andrew Miller, Allianz Cornhill risk control surveyors manager, comments: "This is a worldwide problem and if the ice caps melt there is not a lot we can do about it. But we can lobby and look to influence planning and our focus for brokers and their clients is on providing straightforward advice. This could be checking for flood warnings on the environment website or keeping gutters cleared. And while there is a lot of talk about business continuity management, actually having a workable plan in place is not that common."
Miller says insurers are expecting the frequency of weather events to worsen. And if claims were to reach unsustainable levels then a Pool Re type arrangement might need to be set up to pay for claims.
Insurers largely support the lobbying work of the ABI on climate change and want pressure kept on the government.
But is there cause for panic? Some insurers and, in particular adjusters, question whether there is scaremongering. Some of the figures in the AXA report are strong stuff. For example, the insurer asserts the average claim for business interruption has soared by almost 60% in the four years up to 2005, when it reached £35,000.
It also said that 90% of businesses surveyed are under-insured, with one in three having no business interruption cover to pay wages and other costs if the business cannot operate.
Harry Roberts, technical and product development director at Cunningham Lindsey, comments: "I am not aware of any massive increase in claims. You get problems area, for example, York has suffered flooding and of course Carlisle. But underwriters are not putting exclusions in place. Poor planning can also result in claims."
Meanwhile, Andrew Dear director of technical services at AMG, says insurers may be making a lot of noise about climate change, but that at the same time, they have cut back on surveys. "Postcodes are far from foolproof and often it's not possible to underwrite accurately without seeing the risk."
He agrees that some broker clients could be under-insured in terms of business interruption cover. "The standard 12 months quickly disappears."
Martin Singleton, Norwich Union's technical manager, property, says while claims could shoot up over the years, brokers should maintain their sang froid.
"On our risk services website, there is a lot of information that they can read up on or provide to clients, such as our HardFacts series on flooding or the business resilience report from InFires, the research body funded by the insurance industry.
"But, I am not convinced by some of the figures being bandied about, or that clients have far too little BI. We have a minimum indemnity of 24 months as standard, which for many SMEs should be adequate."
Even if they are not convinced by worse case scenarios, it makes sense for brokers to understand the basics of climate change and be able to talk to their clients about any potential increase in risks.
As trusted messengers – or perhaps harbingers of doom in the eyes of cynics – brokers have a key advisory role. And one fact is guaranteed – climate change is set to remain a hot topic for the foreseeable future. IT