Of all the natural disasters, floods are the most common.  This is especially prevalent during hurricane season when even though you may not experience wind damage you may still get the damaging floods caused by storm surge or the heavy rains that follow the hurricane. Even still,  many businesses and homeowners do not carry insurance to protect them from this potentially devastating risk.

The standard ISO commercial property and businessowners policies do not provide coverage for flood damage and thus coverage must be purchased separately from the National Flood Insurance Program (NFIP) through authorized insurers, or from some private insurers who have their own policies called "write your own" (WYO). The NFIP is a federal program administered by insurance professionals that will cover all types of floods, including flash floods, storm surges, mudslides or snowmelts. Flood policies offered by private insurers may differ in the type of flood events covered.

In determining whether a business needs flood insurance, the most determinant factor is location. If your business is located in a high-risk flood area and you have a mortgage from a federally regulated or insured lender, you are required to purchase a flood insurance policy. High-risk areas aren't just the coasts, however. Riverine flooding is quite common, and areas near rivers are often flooded. NOAA predictions for 2019 indicated increased risk for moderate to major flooding in the upper, middle and lower Mississippi River basins, the Red River of the North, the Great Lakes, and the eastern Missouri River, lower Ohio River, lower Cumberland River and Tennessee River basins. However, even property located in a non-high risk flood zone can flood, evidenced by the fact that each year 20% of all flooding events across the U.S. are in areas considered low to moderate risk. You can determine the risk area your business is in by looking at the FEMA Flood Map Service Center Flood Map. The FEMA Flood Map Service Center (MSC) is the official online resource for all flood hazard mapping products created under the National Flood Insurance Program (NFIP), including each community's flood map, called a Flood Insurance Rate Map (FIRM). Using the FEMA Flood Map Service Center website you can obtain an address specific flood map, access a range of other flood hazard products, and take advantage of tools for better understanding flood risk.

Note that the NFIP usually requires a 30-day waiting period for new flood insurance policies to take effect, so it is important to assess your need for a commercial flood policy well before any flood event is predicted.

It is extremely rare for a business to sustain flood damage without financial loss or business interruption, and 40% of small businesses close their doors for good following a disaster. However, a staggering 77% of small businesses admit they are not prepared for a natural disaster. Past claims reveal that just a few inches of water can cause tens of thousands of dollars in damage. Floodwaters ranging from a few inches to several feet can ruin your business property and costly equipment, impacting your ability to fully service your clients and continue your business operations.

Here are some of the most common events that lead to flooding:

  • Storm surges in hurricane-prone areas;
  • Flash flooding, caused by intense rainfall;
  • Mudslides, caused by long, heavy rain periods on a hill or mountainside;
  • Snowmelt, caused by frozen ground being unable to absorb excess water;
  • Ice jams, when an ice chunk flowing in a river or stream blocks, dams or narrows passageways.
  • Urban development, such as new construction and/or ground paving, which alters flood waters by removing or decreasing the amount of land available to absorb excess flood waters.

If you rent or lease business space, your landlord's insurance coverage will only cover damage to the physical building and will not extend to property damage within your occupancy, except if the flooding is due to the landlord's negligence.

If your small business operates out of your residence, it's vital to note that your homeowners policy will not cover any flood damage, even if your policy has a rider that specifically protects your business property. Instead, a designated flood insurance policy is required for both personal and business assets.

Generally commercial flood insurance covers damage to your building and contents caused by flood. This includes losses resulting from the overflow of rivers or streams, rain, storm surge, snowmelt, blocked storm drainage systems, broken dams or other similar causes. To be a flood, waters must cover at least two acres, or flood two or more properties.

Under the NFIP policy, both the building and its contents can be covered for up to $500,000. For primary coverage on buildings, the coverage includes the repair or replacement of things such as damaged air conditioning, water heaters or electric systems. Contents in the building subject to replacement include merchandise, inventory, and machines on the property. The NFIP flood policy will not cover the loss of property outside the building. The actual amount that will be covered depends on the value of the property and the extent of the loss. If a higher limit is needed to cover the business assets, you may need to consider purchasing an excess flood insurance policy, which covers up to a $1 million limit for additional premium.

Since flood insurance premiums are determined by the chances of your business being flooded and the estimated amount of damage that can be done, up to the policy limits, the premium charge will be based on the area flood zone and the value to be insured. Flood insurance pricing is complex, but insureds located in low-risk flood areas typically pay lower premiums while those in high-risk areas pay more. The premiums can also be affected by such factors as the age of the building, the elevation, the number of floors and the location of the contents in the building.

The NFIP policy does not have an option for business interruption coverage from flood loss. However, there are private insurers who will provide business interruption coverage. In addition, if the insured purchases excess commercial flood insurance, this coverage will include compensation for the period of time the business was unable to operate due to the flood.

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