What Is A Flood Insurance Policy?
Natural disasters can be devastating to businesses. While damage caused by some types of natural events—such as lightning or wind—will usually be covered by commercial property insurance, you need a special policy if you want protection from flood damage. You would need a commercial flood policy to protect your business against flooding.
Commercial flood policies are issued by the National Flood Insurance Program (NFIP) either directly or through licensed insurance agents in the District of Columbia. However, the policies fall within the jurisdiction of the National Flood Insurance Program. The NFIP offers two types of coverage – building coverage and business property coverage – to protect your business structure and belongings. The licensed insurance carrier must follow all guidelines of the NFIP relating to all coverage, underwriting, premiums, and claims. You may be able to obtain flood coverage through private carriers.
What is the definition of a flood?
A simple definition of a flood is an accumulation of water on normally dry land. The NFIP has a technical definition of a flood, which is as follows:
A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from any of the following:
- Overflow of inland or tidal waters
- Unusual and rapid accumulation or runoff of surface waters from any source
- Mudflow, which is defined as “A river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth is carried by a current of water. Other earth movements such as landslide, slope failure, or a saturated soil mass moving by liquidity down a slope, are not mudflows.”
- Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above
What are the common causes of flooding?
Floods can have a variety of causes, and floods can occur even in areas that don’t typically flood. Some of the common causes of flood include:
- Storm surges after hurricanes
- Heavy rain causing flash-flooding
- Overflowing rivers or streams
- Broken dams or levees
- Mudslides due to heavy rain on hills or mountainsides
- Fast melting snow, which can cause floods when the ground is frozen and unable to absorb water
- Blocked storm drains, which may cause a flood even with moderate rainfall
- New urban development which changes natural runoff patterns and reduces the ability of the land to drain properly
Does My Business/Commercial Property Insurance Include Coverage for Flooding?
No. Damage from flooding, including flooding generated by hurricane-generated storm surge, typically is not covered under a standard commercial policy, including a Commercial Package Policy (CPP) or a Business Owners Policy (BOP)
Is Flood Insurance REQUIRED for my business?
Flood Insurance is not a requirement. However, if you own a business inside or outside of the high-risk flood area, you own a building or lease and office, you should consider purchasing flood insurance for the protection and peace of mind it brings. Many business owners, particularly those in high-risk flood areas, may be required to have flood insurance. If you have a mortgage from a federally regulated or insured lender you may be required to obtain flood coverage.
Who Can Buy Flood Insurance?
- Homeowners
- Renters
- Business owners
- Condominium unit owners
- Condominium associations
- Buildings during construction
- Municipalities for city buildings and property
Where can I purchase flood insurance?
Flood insurance is available from the NFIP and some private insurers. However, NFIP coverage can only be purchased through an insurance professional; you cannot buy it directly from the federal government. To find a local insurance professional who is familiar with the National Flood Insurance Program, contact the NFIP at 1-888-379-9531 for an agent referral or through the NFIP Insurance Provider Locator.
How Are Business/Commercial Flood Damages Valued?
The value of flood damage for a business is typically based on Actual Cash Value for losses to the insured building and its insured personal property including stock and inventory. Actual Cash Value is the cost to replace an insured item of property at the time of loss, less the value of its physical depreciation
What Is the Cost of Flood Insurance for my Business/Commercial Concern?
Commercial flood insurance premiums can range from a few hundred dollars a year to thousands of dollars annually. Premiums are based on a variety of factors, including:
- Location of property and associated level of flood zone risk
- Building’s age, height, and occupancy
- Your company’s location within the building, as a company located on a higher floor may see lower premiums
- The location of the lowest floor of your building in relation to the elevation requirement on the flood map
- Deductible, as the higher the deductible, the lower your premium
- The amount of coverage
If I purchase A Business/Commercial Flood Insurance Policy Today, When Is It Effective?
Most flood policies have a 30-day waiting period before kicking in so don’t wait for an approaching storm or a heavy rainstorm before deciding to buy coverage.
What does Commercial Flood Insurance cover?
The NFIP provides two main types of Commercial Flood Insurance coverage: buildings and contents. It also provides other additional coverages such as the increased cost of compliance, as well as prevention, protection, and cleanup.
Buildings
Commercial Flood Insurance from the NFIP provides up to $500,000 in coverage for direct physical damage to buildings from or by flooding. This includes damage to floors, walls, ceilings, plumbing, electrical systems, and HVAC. For businesses that rent their buildings, this coverage can provide for tenant improvements your business has made to the building you rent. Buildings that are eligible for Commercial Flood Insurance include:
- Non-residential buildings
- Residential buildings with 5 or more family units
- Residential condo buildings with at least 25% non-residential occupancy
Contents
The NFIP also covers the contents of your building up to $500,000. Contents coverage includes furniture, fixtures, inventory, machinery, equipment, and other property owned by your business that has been damaged by a flood. The limit for contents coverage is separate from the limit for buildings coverage, so in total, a policy issued under the NFIP will pay up to $500,000 for damage to the building and up to an additional $500,000 for damage to your business property.
Increased Cost of Compliance (ICC)
When a covered building suffers substantial damage, the NFIP also provides up to $30,000 in Increased Cost to bring your structure into compliance. ICC coverage can reimburse you for the cost to elevate, demolish, or relocate a damaged building. It also reimburses the cost to floodproof qualified basements in buildings. ICC claims are included in your building claim limit but are handled separately.
What does my Business/Commercial Flood Policy Exclude?
What are the key exclusions to Commercial Flood Insurance?
There are several common exclusions included in Commercial Flood Insurance:
- Damage caused by moisture, mildew, or mold that could have been avoided by the property owner
- Damage caused by sewer or drain backup unless caused the backup was caused by flood
- Currency, precious metals, or valuable papers such as stock certificates
- Property outside of your building, such as landscaping and septic systems
- Business vehicles, which can be covered by a separate commercial auto insurance policy
- Losses caused by business interruption, which can be covered by a business interruption insurance policy or through excess coverage
What if I need more coverage for my business/Commercial Concern?
If you need higher limits of coverage beyond the NFIP limits, you can purchase excess coverage from a private insurer. In some cases, excess coverage can also provide business income insurance for flood related losses.
If I Purchased Coverage for Both My Building and Business Property, How Many Deductibles Must I Pay if Both are Damaged?
Two deductibles, one for each coverage.
Does Flood Insurance Provide Coverage for Replacement Cost?
Replacement cost coverage is available for a single-family dwelling, including a residential condominium unit that is the policyholder’s principal residence and is insured for at least 80 percent of the unit’s replacement cost at the time of the loss, up to the maximum amount of insurance available at the inception of the policy term.
How to File a Claim for Flood Loss?
A flood insurance policyholder should immediately report any flood loss to the insurance company or agent who wrote the policy. A claims adjuster will be assigned the loss, and the policyholder must file a “Proof of Loss” within 60 days of the date of loss. You can contact the NFIP at (888) 379-9531 or visit NFIP’S Direct Servicing Agent to report a claim.
What is a Proof of Loss?
Proof of loss is the policyholder’s valuation of claimed damages. It is a sworn statement made by the policyholder that substantiates the insurance claim and is required to be submitted to the NFIP or WYO company within 60 days of the loss. A printed form available from the adjuster assigned to the claim.
Resources
DISB Flood Insurance Guide or email your questions to [email protected].
FloodSmart.gov or call 1-800-427-4661