With hurricane season upon us, hopefully, you’ve taken the time to draft (and review) your company’s Business Continuity Plan. Of the many perils hurricanes expose us to, one of the more menacing ones is the risk of flood. Because standard commercial property insurance policies exclude flood damage, commercial flood insurance must be purchased separately and is available primarily through the National Flood Insurance Program (NFIP).
What is Flood Insurance?
While your traditional commercial insurance may cover you if a pipe bursts in your building or a sink overflows overnight, it won’t cover you if the water is rising both inside and outside the building.
The NFIP defines a flood this way: A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is the policyholder’s property) from: Overflow of inland or tidal waters; or Unusual and rapid accumulation or runoff of surface waters from any source; or Mudflow; or Collapse or subsidence of land along the shore of a lake or a similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above.
Floods happen in all areas; approximately 25% of all flood insurance claims occur in “low risk” areas. Flooding isn’t just reserved for coastal areas or those surrounding rivers, either. In the last five years, all 50 states have experienced flooding. According to the NFIP website, Floodsmart.gov, more than a quarter of all businesses that close after an event like a flood never reopen. Flood insurance provides companies a leg up on recovering after the waters recede.
Premiums for commercial flood insurance can range from a few hundred dollars up to several thousand dollars annually. They are based on the age of the structure, location, elevation, and flood history for a given location. Major flood events (like Katrina and Sandy) can change flood risk maps and affect premiums.
Commercial flood insurance provides coverage of up to $500,000 each for a structure and its contents. Whether you’re the owner/occupier, landlord, or tenant, coverage is available to protect your assets in the case of a flood. Deductibles can range from $500 up to more than $10,000. Like property insurance policies, commercial flood insurance properties come with exclusions. NFIP commercial flood insurance policies don’t cover business income, which is a pretty material coverage limitation. Have your Commercial Risk Advisor analyze your policies to help you eliminate gaps in coverage.
When a Claim Occurs
One of the unique things about flood insurance is that, unlike other perils, floods almost always affect multiple structures – not just you, but your neighbors as well. Flood adjusters are accustomed to handling multiple claims in an area and are often the first ones to an affected area once it has been deemed safe to return.
If you experience a flood, contact your advisor to file a claim and document your damages (take photographs whenever possible) as soon as you can. This will help your adjuster prepare a repair estimate.
Like most risks, flooding is something we tend not to think of until it affects us or someone we know. Purchasing a flood insurance policy to cover your building and contents can make all the difference in getting your damages repaired and getting you back open for business.