90% OF SMALL BUSINESSES FAIL TO INSURE ADEQUATELY AGAINST CLIMATE RISKS

New report on climate change threat to UK small businesses reveals 70% in high risk areas are unconcerned about flooding and 90% fail to insure adequately against climate risks.

Opposition parties welcome report and agree it highlights need for urgent Government and business action

Findings include:

• less than one in three businesses have a contingency plan to cover business interruption
• only 8% of businesses in flooded areas received any form of flood risk warning
• just one in four businesses in flood risk areas perceive climate change as a real threat to their business
• businesses expect to recover from flood within one month but in reality average recovery takes more than two months after flooding
• nearly half of businesses believe climate change is exaggerated

A new report by Professor David Crichton has highlighted the significant threat posed by climate change to UK small businesses and the dire financial consequences facing companies which fail to act to protect themselves from the risks it poses.

According to AXA, which commissioned the report, the average claim for business interruption soared by almost 60% in the four years up to 2005, when it reached £35,000. AXA’s own research indicates that 90% of businesses are under-insured, with one in three having no business interruption cover to pay wages and other costs if the business cannot operate.

The Crichton report, based on new research among small businesses in high risk areas like Carlisle and Elgin, also reveals that just 8% of UK businesses have received any form of flood risk warning and that while most businesses are aware of climate change, only 26% see it as a real threat to them, with 46% believing climate change is blown out of all proportion.

Both the Conservatives and Liberal Democrats have welcomed the report and its findings and agree it highlights the need for urgent Government and business action to ensure that companies are adequately protected from the risks posed by climate change.

Peter Ainsworth MP, Conservative Shadow Secretary of State for Environment, Food and Rural Affairs, said: “This is a worthwhile and well-researched report, which scuppers the myth that tackling climate change is bad for business.

SMEs are at the forefront of the battle against climate change because it is harder for them to rebuild after natural disasters. 

“The insurance industry can help SMEs recognise the obligations posed by climate change. However, it is up the Government to make clear the opportunities.

“The insurance industry is at the frontline of the battle against climate change. If we weigh up the environmental, social and economic costs of doing nothing about climate change, it becomes clear that we have no choice but to take action now.”

Chris Huhne MP, Liberal Democrat Shadow Secretary for the Environment and Rural Affairs, said: "This report sets out starkly and persuasively the sharp rise in costs that will be imposed on small businesses over the next decades if we do not tackle climate change. It will be a wake-up call for those in the business community and in government who are still far too complacent about the climate chaos that our burning of fossil fuels has created" said Chris Huhne MP, shadow environment secretary for the Liberal Democrats.

The report points to government research figures showing that average flood damages for UK businesses could increase to between £5.5bn and £42bn each year by 2080 and that around a third of these losses would be from urban drainage problems. He suggests that many small businesses in flood hazard areas will suffer future flood damage which threatens their survival particularly if they do not have adequate insurance.

On the back of the report, Crichton has called on the Government and local government to have a closer dialogue with the insurance industry on flood hazard, exposure and vulnerability issues.

Commenting, Crichton said: “Recent research reports show we are reaching a ’tipping point’ with climate change. Even if global agreement can be reached on reducing greenhouse gas emissions, it is too late to prevent a rapid growth in extreme weather and sea level rise this century. This means that we have to adapt our buildings and cities now for the climate change impacts which are projected.”

Peter Hubbard, Chief Executive of AXA Insurance UK said: “SMEs are the backbone of our economy, employing some 12 million people. Climate change poses a real threat to their existence and this is a problem that to a great extent has been overlooked. The insurance industry, government and other relevant parties must work much more closely together to ensure that businesses understand the scale of the threat posed to them, and what actions they can take to reduce these risks.”

Crichton added: “Small businesses such as the corner shop or the local builder are important for social cohesion, local employment and innovation. They could be the key to making a low carbon economy successful, but they need more help and guidance to help them survive. AXA is publishing an excellent short guide to risk management for small businesses which should help them.

“In the meantime there are grounds for optimism. The insurance industry and WWF are already doing effective work on issues such as sustainable flood management and advising many local authorities on planning issues and sustainable drainage systems. There is a worry, however that sometimes new environmental regulations may be misused as an excuse to avoid restoring wetlands and rivers to cope with the increased severe rainfall events expected in the future.”

In addressing these issues, Professor Crichton has made the following recommendations:

• Closer partnership between the insurance industry and government, where the expertise of the industry in risk management, and flood data, can be fully utilised.

• As investors, insurers can influence companies over their carbon emissions and environmental policies. They can also work to support and strengthen the European Emissions Trading Scheme in partnership with WWF.

• Insurers could advise government on the flood hazards of areas designated for new development.

• Sustainable flood management solutions are to be encouraged in the context of ensuring future ecological quality of our rivers and lakes and providing more cost effective and natural flood protection.

• Insurers can offer incentives to promote sustainable and responsible behaviour in developments and business practice.

• Insurers should consider producing their own, more resilient, building standards for new build and repairs, which could form a condition for providing cover in the future, especially in flood hazard areas.

ARTICLE BY AXA INSURANCE