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Heartbreaking images of the midwest fill the news daily, swollen rivers obscuring the landscape but for the tops of trees, power poles, and the rooftops of submerged residences and businesses. The devastation is often complete – physical, emotional, financial. In short, vis major.

Buttoning up the LRO policy with flood insurance

Vis Major can – and does – strike anywhere, anytime, and flooding is not limited to the midwest and the spring/fall storm cycle. Flooding is the most common – at 90 percent – natural disaster in the US, and the most expensive. Flooding represents 75 percent of all declared US disasters. The western US has its share of flood-related losses, and the news is a reminder to revisit coverage, determine where there are vulnerabilities, and to make sure businesses and commercial properties are properly covered. LRO coverages should be tailored specifically to the building/s to be covered. Specific hazards may need to be added when purchasing an LRO policy, as coverage requirements differ from area to area.

NFIP considerations

When obtaining coverage through NFIP (National Flood Insurance Policy) to add to an existing or new coverage provided by an LRO policy, here are some important considerations for brokers and agents..

  • Generally, NFIP flood insurance is not the only option, and it is rarely the best option for commercial property. NFIP flood policies provide extremely limited coverage. They do not cover anything outside the four walls of the building; they are ‘direct-loss’ policies, meaning they only cover damages directly touched by flood waters.
  • If there are multiple buildings or structures on the commercial property that need flood insurance coverage, a separate policy must be put in place for each building structure. Each building structure must have its own flood insurance policy for it to be covered.
  • Many commercial property owners often do not realize the General Property Standard Flood Insurance Policy (“SFIP”) offered only covers one building/structure on the property. The General Property SFIP states in bold, “Only one building, which you specifically described in the application, may be insured under this policy.”
  • NFIP allows for up to $500,000.00 in flood insurance coverage for each individually insured building structure, and up to $500,000.00 in coverage for personal property or business contents within the covered building structure.
  • If a commercial property building or buildings need more than $500,000.00/building in flood coverage, it’s necessary to seek additional flood insurance coverage through a private or excess flood insurance policy.
  • NFIP flood insurance policies do not cover business interruption, lost business profits, etc.

Other options

Private flood insurance is making slow, but steady gains in the US marketplace, as insurers are beginning to return to a market largely abandoned following the slow-moving, Great Mississippi Flood of 1927, the most destructive river flood in US history, when 27,000 square miles flooded up to a depth of 30 feet. The impact hit 10 states, some 500 people died as a result of the flooding; more than 700,000 were left homeless. Now, more than 80 companies participate in the private flood insurance market. The Write Your Own companies (WYO) issue, and service federally backed flood insurance policies under their own names, collect premiums, and handle and pay the claims. The federal government retains the responsibility for underwriting the losses. That means rates for this program are set nationally, so they are the same regardless of the company or agent.

Bottom line

Floods are not limited to flood plains shown on maps. Time and again, we see areas with no immediate past history experience floods, given the right conditions. And the losses are heartbreaking.
For additional information and specifics regarding our Commercial Lessor’s Risk Only (LRO) product, contact Novita Insurance,
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