Basement space to become flood damage claims without protection

Tightening space to build is forcing property developers and owners to build and extend down into their basements. Naturally, basements are already hugely exposed to flooding, given their position below street level and their close proximity to underground pipes and drains. Linked largely to climate change and the growing incidence of extreme weather, flood risks are intensifying. In parallel, developments in technology and the growing number of amenities now housed in the basements of modern buildings is accelerating the already costly damage flooding can cause. Without proper risk management, this dynamic could soon present a very expensive water damage disaster for the managers of buildings with luxury basements.

Extreme flooding and surface level hazards, which scientists suggest are being driven by climate change, are becoming more frequent and severe. In the UK, the Met forecasts intense rainfall associated with severe flash flooding could become more than five times more likely by the end of the century. Our own claims data shows the dramatic impact flash floods can have. During the London storms of July 2021, 63 flood-related claims were submitted to Lockton on the first day of the storm, representing some £3,254,500 worth of insured damage. A further 15 claims were submitted that week. Eight of the total 78 claims were deemed ‘major losses’ as they totalled over £100,000. Two of the eight major losses exceeded £650,000. The largest claim submitted, for £688,850, related to a flooded basement.

Basements are becoming more popular, particularly as a solution to rapidly growing population densities in busy cities. Data collected by Newcastle University’s global urban research unit calculated the combined depth of all of London’s basements built between 2008 to 2017 amassed to 50 times the height of The Shard building (310m). Basements are also becoming more expensive. As technology advances, they are becoming the ‘nerve centre’ of a building and home to the likes of air conditioning, heating and entertainment systems. Giving rise to the ‘super basement’ trend, the wealthy are choosing to add swimming pools, home gyms, cinemas and even artificial beaches to the underground level of their homes.

As basements become not only more commonplace but more valuable, they are becoming more expensive and difficult to insure. Insurers are applying more scrutiny than ever before over what basements are used for and are starting to apply specific terms or excesses to the policies that cover the sophisticated technology housed in them. Increasingly severe and frequent flooding is therefore having a knock-on effect on premiums, as insurers are having to increase their deductibles for locations deemed to be at a high risk of flooding. Insurers also review previous claims history and it can become really hard to obtain flood cover for a property that has flooded within the past five years. As the rate of inflation continues to soar, it is also bumping up the cost of building materials to make repairs and the cost of equipment that needs to be replaced.
There are several practical measures property owners and developers can take to mitigate the risks of surface water flooding affecting their property, which could also make flood insurance more affordable, even as the value of basements grows. These measures include reducing the volume of water entering existing drainage through the increased use of soakaways and permeable surfaces, along with regular maintenance of drainage, gutters and gullies. The onus should not just be on the individual though. Damage caused by floods has a detrimental impact on vulnerable communities and lives. Industry and government wide policies are being rolled out to ensure support is given to protect buildings against the growing threat. For example, ‘Build Back Better’ by FloodRe is a joint initiative between the UK Insurance industry and the government to promote the affordability and availability of flood insurance for homes. Similar initiatives are being considered for commercial properties.

It has never been more important to consider flood risks as they become more prevalent and costly. Property owners and developers must ensure they have the proper monetary and physical protections in place, to limit interruption and improve flood resilience. Governments, companies, investors, and individual property owners should assess their risks and historic data to improve protection strategies for their assets. It may also be appropriate to engage flood risk specialists who can advise on best practice risk mitigation and protection, before a flooded basement becomes a devastating expense.

Byline: By Gregg Cordell, senior vice president, Lockton