Is Your Business Insured For Flood Loss?

April 21, 2009 — Heavy rainfall coupled with the recent snowmelt from this winter’s heavy snowfall is causing streams and rivers to swell, increasing the likelihood of flooding. While the threat of flooding is very real in these high risk areas, about 25 percent of national flood insurance claims in recent years came from places not considered at high risk for flooding. That is why businesses, no matter where they are located, need to have flood insurance, according to the Insurance Information Institute (I.I.I.).

Standard business owners policies (also known as BOPs) provide coverage for disasters such as fire, lightning, hurricanes and winter-related damage including burst pipes, but flood damage is not included. Flood insurance is also excluded in a typical commercial property policy unless specifically added.

Flood insurance is available through the federal government’s National Flood Insurance Program (NFIP) and through some private insurers. To qualify for NFIP coverage, you must work in a designated community and comply with government guidelines for flood prevention.

“One of the biggest mistakes a business owner can make is not to buy flood insurance,” said Loretta Worters, vice president, I.I.I. “An estimated 25 percent of businesses do not reopen following a major disaster and 80 percent of companies that do not recover from a disaster within one month are likely to go out of business.
Business owners should contact their insurance agent or company representative now to make sure they have the right type and amount of coverage.”

Coverage limits for a standard flood policy are $500,000 for the business structure and $500,000 for the business contents; coverage is provided on an actual cash value basis. Deductibles range from $500 to $1,000, depending on the policy you buy. Generally, if you buy a policy inside a floodplain (any area susceptible to being inundated by floodwaters), the deductible is $1,000, unless mitigation measures have been taken to protect the building.

In addition to structure and contents coverage, the NFIP policy includes:

• Increased Cost of Compliance (ICC). If your business is damaged by a flood or if the building has been declared substantially or repetitively damaged, you may be required to meet certain building requirements in your community to reduce future flood damage when you repair or rebuild. To help you cover the costs of meeting those requirements, the National Flood Insurance Program includes ICC coverage for all new and renewed Standard Flood Insurance Policies. Coverage can be applied to elevation, relocation, demolition or flood proofing up to $30,000. ICC is not available to policyholders covered under Group, Condo or Emergency Program policies.
• Debris and Loss Avoidance provides coverage for debris removal and loss avoidance measures (like the cost of plywood and sandbags), up to $1,000.

In addition to standard flood coverage, business owners can purchase an excess flood policy or a Difference in Condition (DIC) policy, either of which provides coverage limits over and above the maximum limits available directly from the National Flood Insurance Program or from private carriers participating in the NFIP.

Excess flood policies insure specifically against the peril of flood and are generally written to provide limits in excess of the maximum amounts available through the NFIP. DIC policies insure against many of the exclusions found in the standard "fire" policy, such as earthquake and flood. DIC policies often cost a little more than excess flood insurance due to their broader coverage. Coverage limits of $5 million and higher are often available.

How to Purchase Flood Insurance
Federal flood insurance policies can be purchased directly from an insurance agent, a broker or a company representative. Nearly 100 insurance companies write and service NFIP policies. In order to find an agent or company servicing your area, visit the NFIP’s FloodSmart Web site, or call (888) 379-9531.

To Assess Your Flood Risk
More than 20,000 communities in all 50 U.S. states and territories voluntarily participate in the NFIP, encompassing nearly all properties in the nation’s high-risk flood zones. For more information on the level of risk in your area, visit the Your Flood Risk section of the NFIP Web site; in the lower left hand corner is a One Step Flood Risk Profile tool where you can enter your address to determine your level of flood risk.

Don’t Wait Until It’s Too Late
Business owners should keep in mind that there is a standard 30-day waiting period from the date of purchase before a new flood policy goes into effect, so don’t wait until the last minute to get the coverage. However, if your lender requires flood insurance in connection with the making, increasing, extending or renewing of your loan, the waiting period is waived.

“Flood Insurance is a vital risk management tool, protecting the most important investment you will ever make—your business,” said Worters.