Flood insurance is a unique type of property insurance, often excluded from commercial property policies and thus easily overlooked unless it becomes necessary due to lender requirements. As a result, many agents are not familiar with the nuances of flood insurance.
However, as the risk of floods continues to rise, it is becoming increasingly important for insurance agents to understand the intricacies of flood insurance. Allow us to guide you through several key considerations to ensure that your clients can make informed decisions when it comes to flood insurance.
Less than a third of all United States property owners have a flood insurance policy. In part, this may be because many people believe that a property is safe from flooding if it is located far from a water source. That, however, is far (no pun intended) from the truth: Floods are not selective, which means flooding can happen anywhere and everywhere. Floods result not only from storm surges, but also swollen rivers, lakes, and even streets. In fact, 40% of claims filed with the National Flood Insurance Program (NFIP) are located outside of high-risk zones. But regardless of where the water ultimately comes from, it only takes a few inches of water to cause hundreds of thousands of dollars in property damage.
Most commercial property insurance excludes flood coverage, but some will include flood if the property is not in a high-risk flood zone. However, these policies typically come with significantly high deductibles. Due to lenders' increased awareness of flood risk beyond the high-risk flood zone, it is becoming more common for lenders to require businesses to exclude these high-deductible properties from their commercial property policies and instead opt for a standalone flood policy. This ensures better protection and coverage for potential flood-related damages.
The Federal Emergency Management Agency, more widely known as FEMA, manages the National Flood Insurance Program (NFIP). The NFIP makes flood insurance available to businesses and commercial property owners and will cover up to $500,000 for the building and $500,000 for contents coverage.
Of course, for commercial property owners in particular, flood damage can easily exceed these amounts. That’s where the private markets come in. Many private insurers offer excess coverage (beyond the aforementioned amounts) along with coverage for lost business income and even improvements and betterments. Private insurers also have the ability to offer blanket coverage or schedule coverage for multiple locations on one policy even if those locations are in different states. (The NFIP requires a separate policy for each building/structure.)
Here at AFR Services, we specialize in writing these types of policies on behalf of insurance agents for their commercial clients.
Climate change and the destruction of natural habitats together contribute to an increase in flood risk. This means that even if a business isn’t near a river or levee, it could still be at risk. Flood zone risk designations are regularly updated by FEMA. Zones rated A or V are considered high-risk. Any property located in A or V flood zones has a 1% or greater chance of flooding in any given year, and a 26% chance or greater of flooding over a 30-year mortgage. This is often referred to as the 100-year floodplain. Low to moderate-risk zones, where there is a less than 1% chance of annual flooding, are designated as B, C, and X.
People and businesses located in high-risk flood zones with mortgages from government-backed lenders are required to have flood insurance. But even if a property is in a zone B, C, or X, it is worth investing in flood insurance.
Flood insurance can be purchased at any time, but there may be a waiting period before coverage becomes effective. For example, most NFIP policies have a 30-day waiting period, though there are some exceptions. If flood insurance is purchased while securing, adjusting, or renewing a loan for the property, there is no waiting period. Instead, coverage starts as soon as the loan closes. In general, it is always better to plan ahead because where it can rain, it can flood, which means it is important to get protection sooner rather than later.
For a better understanding of flood insurance and coverage costs, why not work with AFR Services? Our 30+ years in the flood business provide us with all the tools and knowledge we need to work with you, and your commercial clients, to find the best and most cost-effective solutions for their properties.