UPDATED on 11/30/2018: Business owners know that protecting your operations, building and contents are vital to your livelihood.
Businesses without commercial flood insurance coverage have three basic choices after flood disaster:
- Pay recovery costs out of pocket
- Incur debt (by borrowing money from the government)
- Close their doors
Damage from storms like Sandy (or any of her lesser cousins) forces many businesses to choose the third option — sometimes permanently.
The ins and outs of commercial flood insurance are confusing and complex.
Read or watch our video summary on Commercial Flood Insurance.
Complete Guide to Commercial Flood Insurance
Commercial flood insurance protects your building and contents from loss due to flooding. This includes flooding generated by a hurricane-generated storm surge like Sandy.
In New Jersey alone, nearly 19,000 small businesses sustained damage of $250,000 or more with total business losses estimated at $8.3 billion as a result of Hurricane Sandy.
Hartford Insurers conducted a survey of small businesses forced to close immediately after Hurricane Sandy. Nearly 20% had not reopened after two weeks. Obviously, some never reopened at all.
Standard Policies Don’t Cover
Your standard Commercial Package Policy (CPP) or Business Owners Policy (BOP) does not cover flood damage. Refer to your Summary of Coverage or ask us to help you better understand the policy and coverage.
Standard commercial property insurance generally covers water coming down from above–for instance from a leaky roof or from snowmelt overflowing gutters and destroying your inventory
Water rising from below–such as a storm surge or rising river is NOT covered.
Commercial Flood Insurance Protects Against Water From Below
Commercial flood insurance protects property owners from losses due to water damage coming from rising water. Policies cover damages from overflowing storm drains, rising rivers or storm surges– even if it isn’t a federally declared disaster.
Policies generally consider water covering a large area or at least two properties a flood. The policy will reimburse covered losses.
There are a few exceptions.
Policies do not cover property or equipment outside your building. The septic system, cisterns or trees are generally outside the policy.
Flood insurance does not generally cover damages caused by earth movement (like a sinkhole or mudflow), even if caused by a flood.
Commercial flood insurance policies do not cover damage to business vehicles. Flood damage to business vehicles is optionally covered in the comprehensive portion of your business vehicle insurance.
Risk Factors for Loss
Location is the most important factor for weighing your risk for flood damage.
Search the FEMA- created Flood Insurance Rate Maps (FIRMs) to determine your business risk of flooding.
- Zones labeled B, C, or X represent moderate to low risk areas. Even low-risk areas flood with sudden heavy rain or storm surge
- The letters A or V represent the highest risk Special Flood Hazard Areas
- Areas labeled with the letter Z have undetermined flood risk
You must have a flood insurance policy if your business is in a high-risk flood area and you have a mortgage from a federally regulated or insured lender.
The amount of time that your business has to prepare for a flood is also a risk factor.
Another risk factor is your business’ level of flood damage mitigation. Does your business keep equipment or inventory at ground level or lower? Can or have the assets move to upper floors or higher ground?
You should also consider risk factors like strong codes and enforcement, sandbagging, and other community mitigation efforts.
Obtaining Commercial Flood Insurance
A commercial flood insurance policy does not take effect until 30 days after purchase.
Once a flood alert is declared in your area, it is too late to buy a policy.
Commercial flood insurance comes from FEMA’s National Flood Insurance Program (NFIP) or private insurers. You cannot purchase coverage directly from the federal government. You must purchase NFIP coverage through an insurance professional.
There are two categories of commercial flood insurance:
This policy is available for businesses located in areas with a high or undetermined risk of flooding. Standard policies insure the building and its contents separately (two policies.)
NFIP offers up to $500,000 of coverage on the building and $500,000 of coverage on the contents, with deductible options up to $50,000. The deductible applies separately to the building and contents (two deductibles.)
The NFIP’s loss settlement structure is Actual Cash Value (ACV), with deductions from the value for depreciation of the building and contents.
Preferred Risk Policy
NFIP offers businesses in areas zoned B, C or X, with a moderate to low risk of flooding this policy. Preferred risk policies insure both the building and the contents of a single policy (one deductible.) This type of policy has the lowest cost premiums available through NFIP. Optionally, you could reduce your coverage to insure only the contents.
Increased Cost of Compliance Coverage
Most NFIP policies include Increased Cost of Compliance (ICC) coverage, which applies to substantially flood-damaged buildings or buildings subject to repeated losses.
If you are required to bring your damaged structure up to current floodplain management building standards, you may use ICC coverage to help cover these costs.
ICC coverage provides up to $30,000 of the cost to elevate, relocate, demolish or flood-proof the building. Payment of the ICC claim is in addition to the amount of the building claim; however, the total of the two claims cannot exceed $500,000.
Not Covered by NFIP
The National Flood Insurance Program covers direct physical damage by flood but does not cover:
- Amounts in excess of $500,000 building
- Amounts in excess of $500,000 building contents
- Business interruption or disturbance due to flood damage to the building
- Actual Replacement Value of the building and contents is not guaranteed.
A separate supplemental policy is purchased to cover buildings and contents valued over $500,000, business interruption or Actual Replacement Value.
Excess Commercial Flood Insurance
We can assist you through private insurers to purchase Excess Commercial Flood Insurance coverage for:
- Losses to properties valued above NFIP limits
- Actual Replacement Value of equipment and inventory
- Losses due to business interruption.
This is a supplement in addition to your NFIP policy.
Protecting Your Success
Let us help you find detailed information about NFIP policies, private insurers and the right kind of insurance to secure your business.
Please contact us and we will be happy to explain risk, business owners’ policies, commercial flood insurance, and all the right tools to protect your investment.