Staying Liquid After The Deluge: How Business Owners Can Prepare For Flood Season

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Insurance Information Institute

Mar 21, 2013, 10:03 ET

A Reminder That Flood-Caused Damage Is Not Covered Under Most Commercial Property Insurance Policies

NEW YORK, March 21, 2013 /PRNewswire-USNewswire/ -- Cash flow is the lifeblood of all businesses. But in the wake of a flood, too many business owners are forced to divert substantial funds to repairing flood-damaged property, instead of growing their business. Without flood insurance, it will not be long before a business is under water, according to the Insurance Information Institute (I.I.I.). 

After Hurricane Sandy struck in October 2012, entire businesses were wiped out; their inventories and equipment destroyed. In fact, almost 40 percent of small businesses never reopen their doors following a disaster because just a few inches of water can cause tens of thousands of dollars in damage, the National Flood Insurance Program (NFIP) reports. 

"Ninety percent of all natural disasters involve flooding. Hurricane Sandy is simply the most recent and tragic example," said Loretta Worters, vice president with the I.I.I. "From 2007 to 2011, the average commercial flood claim was over $75,000; a substantial amount of money for a business to have to come up with on their own." Though the final figures are not yet in, Sandy produced billions in flood losses to businesses.

Flood coverage is excluded under most commercial property insurance policies. However, coverage for flood-caused damage to a business is available from private insurance companies and from the federal government. Although many companies purchase commercial flood insurance through the private market, more business owners are now inquiring about purchasing additional coverage through the Federal Emergency Management Agency's (FEMA) National Flood Insurance Program. When used in tandem, NFIP coverage can mitigate or "buy down" large deductibles associated with commercial flood policies or simply provide additional coverage.

For small business owners, flood coverage is available as an endorsement to a Business Owners Policy (BOP), available through some private insurance companies, if the business is located outside a flood zone. Flood insurance for small businesses is also available from the NFIP.   

The first step in securing flood insurance is to contact your insurance professional to discuss the specific needs of your business and the coverage options available.

A standard commercial flood insurance policy covers direct physical losses caused by flood as well as losses resulting from flood-related erosion caused by heavy or prolonged rain, coastal storm surge, snow melt, blocked storm drainage systems and levee or dam failure.

The I.I.I. offers four key strategies for protecting your business during flood season:

  1. Check with your local government office or commercial bank to see if your business is located in a flood zone. Ask around to find out whether your location has been flooded in the past. Knowing if a property is in a floodplain is critical to keeping yourself, your employees and your property safe during a storm, as well as to properly insure the property. Be aware that the NFIP is rolling out newly updated flood maps that will significantly expand flood zones in many parts of the country. And do not assume that just because you were not in a flood zone last year you will not be in one today!
  2. Consider buying flood insurance. Flood insurance premiums are calculated based on a number of factors in addition to the flood risk to the structure, such as the year the building was constructed, building occupancy, number of floors, the location of the contents, the deductible chosen, and the amount of building and contents coverage a policyholder has purchased, among other things.  If a commercial property is in a high-risk flood area and a businessowner has a mortgage from a federally regulated or insured lender, he or she is required to purchase a flood insurance policy. However, even if the property on which the business operates is leased, business owners should consider purchasing flood insurance to cover improvements made.
  3. Include comprehensive coverage for your commercial or fleet vehicles. Flood damage to commercial vehicles is covered under the optional comprehensive portion of a standard commercial auto insurance policy. 
  4. Don't wait. While some areas are more prone to flooding than others, no place is completely immune. Even in high-risk areas, many business owners wait until a flood is imminent before considering a flood insurance policy. There is typically a 30-day waiting period from the date of purchase before a new NFIP policy goes into effect, so waiting until the last minute could leave you without flood coverage altogether.

"Businesses should always talk with their insurance professional regarding their flood risk and how to protect against it," said Worters.   

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SOURCE Insurance Information Institute