SMEs and flood insurance: Assessing the effective resilience using contextualised evidence

Flooding is one of the biggest challenges reported by small to medium-sized businesses (SMEs) in the UK, and flood insurance is an important tool for reducing SMEs’ future flood risks. Flood insurance helps small businesses manage increasing risks and, if priced and designed right, serves as a powerful incentive to better prepare for and reduce the impact of future floods. However, flood insurance uptake by SMEs is low and expensive. Insurance pricing depends on knowing an SME’s risks and level of resilience with confidence. However, SMEs exhibit diverse risk profiles and levels of vulnerability due to their heterogeneous business characteristics. Such complexity makes it difficult for the insurance industry to commodify SMEs’ risk and provide affordable insurance. As flood risk is on the rise, it is paramount to identify which factors influence insurers’ decisions to grant insurance to SMEs or deny it. This study uses a mixed-method approach were through online surveys, semi-structured interviews, focus group discussions, and workshops with lenders, insurers, surveyors, brokers, and SMEs, pursue threefold objectives: 1) identify factors that influence SMEs resilience and insurers decision making; 2) assess SMEs’ losses, flood risk mitigation strategies and insurance needs; and 3) collaborate with the insurance industry and SMEs to design and pilot a tool to unlock affordable insurance coverage. Results show that while critical, professional flood risk assessment and flood depth damages are not sufficient on their own. Well-kept descriptive and photographic evidence, along with the positive attitude associated with SMEs’ behaviour, makes the evidence much more compelling and convincing when they are deciding whether to insure or lend to specific businesses. The tool also encouraged SMEs to initiate or improve resilient behaviour and to facilitate communication and knowledge exchange between SMEs and insurance providers. Overall, this research offers policy and practice recommendations that have the potential to increase mutual understanding and drive a positive behavioural change among SMEs and the insurance industry.