A new study has highlighted serious flaws in business interruption estimates relating to a severe London flood

A study by Middlesex University found that a common method of calculating business interruption exposures is unlikely to give an accurate estimate of losses after a London flood of even unexceptional severity, according to Prof Edmund Penning-Rowsell of the university’s Flood Hazard Research Centre.

Penning-Rowsell told a seminar on London flood organised by the Lighthill Risk Network, a new UK organisation that links scientific and business communities, that their research had shown no constant relationship between the likely physical damage from a flood and the possible extent of business interruption.

This means that the accepted method of calculating business interruption as a percentage of physical damage is “poor” as a method of assessing potential losses, mainly because of multiple, possible direct and indirect sources of disruption, he explained. “There are a myriad of these costs and many are very, very difficult to tie down.”

In case of severe flooding, the effects would spread through the economy as a result of inter-dependences, and resources for repair and rehabilitation after the event would be stretched, so the business interruption element would be even greater. At the same time, other factors are likely to mitigate the longer term impact of flooding, including the great increase in business continuity planning and improvements in forecasting and communications, Penning-Rowsell explained.