Turning the Tide on Business Flood Insurance
I vividly remember watching the local news footage of Tropical Storm Irene’s destruction as heavy rains pounded our region on August 28, 2011.
Throughout Western Massachusetts and parts of Vermont, rivers swelled to levels never seen before and roads and bridges were literally washed away. It wasn't long until my phone started ringing with calls from panicked clients. As an insurance agent, those are the worst of times.
A string of natural disasters in recent years has brought the issue of flood insurance to center stage as property owners, here and across the country, have worked to recover and rebuild. New legislation may further impact property located in flood zones.
Insurance for commercial properties located in flood zones is typically provided through the National Flood Insurance Program (NFIP), administered by the federal government. Private insurers have no interest in offering flood insurance because losses are catastrophic in nature and are virtually guaranteed to occur over a period of time. Business property insurance policies exclude the peril of flood.
Due to losses suffered from severe weather events like Tropical Storm Irene and Superstorm Sandy, the NFIP has been running at a significant deficit. In July 2012, the U.S. Congress passed the Biggert-Waters Flood Insurance Reform Act, calling on the Federal Emergency Management Agency (FEMA) to make sweeping changes to the NFIP. The new legislation requires the NFIP to raise rates to reflect true flood risk, meaning premium rates will increase for many policyholders over time.
Businesses already insured through the NFIP will see premium increases of 25% per year until NFIP views the rates as adequate to fund the program. If an elevation certificate is not currently on file with NFIP, business owners will be required to contract with a land surveying company to provide an elevation certificate in order to obtain coverage. The results of the elevation certificate could further impact premiums.
Due to the sizable increases in premiums and the outcry of property owners located in flood zones, a bipartisan coalition of senators recently proposed a bill to delay the full implementation of the Biggert-Waters Act. The legislation recommends delaying premium increases for two years while FEMA conducts a more in-depth study on the affordability of flood insurance.
For those with businesses with an exposure to flood it is important to know that the maximum limits available from the NFIP are $500,000 on building and $500,000 on contents. The program does not provide any business interruption insurance for loss of profits and continuing expenses. Additionally, the insurance does not provide wash out coverage or cover damage to your land.
It is important to assess the potential for flood damage to your property. You can first find out if your property is located in a flood zone by clicking here.
For more information about the National Flood Insurance Program, or the Biggert-Waters Reform Act, visit the official site of the NFIP: www.floodsmart.gov.
Please call us if you have questions about flood insurance or if you'd like to review your policy.