Flood Insurance for Commercial Properties in the USA
Flood Insurance for Commercial Properties in the USA
Flooding is a risk to your business whether you’re located on the coast or inland. All 50 states experience flooding. The average commercial flood damage is about $90,000. In fact, floods cause an average of $4 billion in damage per year.
The risk is so significant that insurance companies charge high premiums to cover the damage and compensate for losses. This led to the creation of the National Flood Insurance Program (NFIP) in 1968. Without the NFIP, those who need flood insurance the most wouldn’t be able to afford it.
The main causes of flooding can vary depending on your location. However, most commercial floods are caused by storm surges, flash floods, landslides, snowmelt, or new construction projects. A commercial property insurance policy does not cover damage caused by flooding; a separate flood insurance policy is required for that.
Remember, a flood is a general and temporary condition where normally dry land is flooded with inland or tidal waters, there is an unusual and rapid accumulation or runoff of surface water from any source, or landslides occur. Simply put, flood insurance covers damage caused by water that first touches normally dry land before damaging your building or property.
Several factors help determine whether your property will be insured and the premium for flood insurance. It’s important to consider whether your property is in a moderate or low-risk zone or a high-risk zone.
Some questions to ask:
– How old is your building?
– What is its height and capacity?
– Where is your business located within the building?
– How high is the lowest floor compared to flood zone elevation requirements?
– What coverage limits do you want for the building and its contents?
– What deductible (self-participation) will you choose?
If you are in a low-risk zone, you might think you don’t need flood insurance. And hopefully, you won’t. However, low risk doesn’t mean no risk.
If you want to learn more about flood insurance for your commercial or residential property, contact one of our agents here. We’ll be happy to answer your questions and offer an insurance solution tailored to your needs.
The United States is vast. In fact, it’s the third-largest country in terms of both area and population. Despite having 334 million residents, nearly half the country remains completely uninhabited, with more people living in New York City than in the next nine states combined.
Few Americans live in these empty, isolated states, even though many offer breathtaking landscapes.
The 19th may have made headlines again in 2021, but flooding across America and the issues surrounding flood insurance also continued to make the news. Hurricane Ida in late August carved a path from the Gulf to the Northeast. FEMA rushed to implement NFIP’s Risk Rating 2.0 by the October 1 start date, as climate change and flood risk became increasingly important, and the revised NFIP rating system was now in effect.
What can agents and brokers expect in 2022 and beyond? Unforeseen consequences continue to arise from the hasty implementation of NFIP Risk Rating 2.0. NFIP decided to implement Risk Rating 2.0 over a 10-year period rather than the original five years. NFIP rates won’t reflect what NFIP considers accurate flood insurance premiums for a long time. This, in turn, means producers and their clients must navigate a more dynamic flood insurance market, with private flood insurance gradually playing a more prominent role in securing the best deals for flood insurance buyers.
Consider the floods in 2021. According to the National Oceanic and Atmospheric Administration, 2021 was the third most active hurricane season on record and the sixth consecutive above-normal Atlantic hurricane season. 21 named storms and four major hurricanes were often accompanied by torrential rains and widespread flooding. Hurricane Ida was one of the costliest hurricanes in history, with flood losses alone estimated between $16 billion and $24 billion.
After making landfall in Louisiana on August 29, Hurricane Ida moved north, dropping up to nine inches of rain in Pennsylvania, New York, New Jersey, and surrounding states. Although Ida was the largest and costliest flood event of the year, it was just one day amid ongoing climate change and seemingly endless storm activity.
Many lawmakers and taxpayers hope Risk Rating 2.0 will help address issues caused by inadequate and unfairly calculated NFIP rates. NFIP was initially established to foster a private flood insurance industry that would charge adequate and fair rates. With Risk Rating 2.0, FEMA developed a more accurate flood risk assessment. While this is a noble attempt to ensure fairness in flood insurance rates, the current implementation plan won’t yield meaningful results in a reasonable timeframe. For example, Risk Rating 2.0 continues to use old structures that have proven counterproductive.
NFIP will continue to deny premium refunds if the policyholder chooses to switch to a more favorable offer from the private market, except for the NFIP policy renewal date. This is a major barrier to private market growth and ensures taxpayers will fund more NFIP losses than necessary. Moreover, private market policies offer advantages like additional living expenses coverage and a broader flood definition. No property owner will pay more than $12,125, regardless of risk. Repeated losses will be assessed as if they had not occurred until a new claim is filed.
This provision provides undeserved benefits to property owners with repeated losses. The local discount program continues to affect the disparity between NFIP rates and risk. The outlook for agents and brokers since the introduction of Risk Rating 2.0 remains unpredictable: NFIP flood insurance rates can fluctuate sharply, and agents are encouraged to lock in all NFIP quotes to convince clients to stick with lower prices. They should also complement NFIP quotes with private flood insurance offerings, which tend to offer more stable and competitive rates.
Agents and brokers must be aware of the NFIP cancellation rule and inform policyholders about possible options 30 days before policy renewal.