Commercial Flood Insurance is All the Same, Right?
By Drew Strouse, Commercial Insurance Advisor
I’ve never constructed a more incorrect statement regarding insurance in all my seven years in the business! Commercial flood insurance is most definitely not all the same. Let’s start with the basics: there are typically three routes for securing commercial flood insurance, all of which offer different limits of insurance and varying terms and conditions.
The most restrictive and last resort to securing commercial flood insurance is through the National Flood Insurance Program (NFIP), administered by the US government. The worst part of this program is the low maximum cap on the limit of insurance as a result of flood. This cap is $500,000 for building and business personal property. Additionally, you can’t purchase coverage for loss of business income as a result of flood from the NFIP. Nine times out of ten, clients securing flood insurance through the NFIP are located in a high risk flood zone, i.e., flood zone A/AE, and no one other than the US government is willing to insure this right due to the likelihood of a claim.
The second option, less restrictive but still posing some issues, is securing flood coverage from the private excess and surplus flood markets. Excess and surplus markets aren’t fly by night insurance companies or anything like that; they simply don’t have their forms approved by the state insurance department, aren’t subject to paying state taxes, and aren’t part of the state guarantee fund if the insurance company were to go bankrupt. Having said all that, there are some benefits of purchasing flood insurance from these markets. Business owners can purchase higher limits for building and personal property than the maximum limit of $500,000 offered by the NFIP. Additionally, business owners have the option to add coverage for loss of business income. Last, excess and surplus lines flood markets can offer an endorsement called “National Flood Insurance Compliance Guarantee Endorsement,” typically required by lenders when flood insurance is required by a loan.
In my opinion, the best option for coverage and cost is to purchase commercial flood insurance through the standard markets. When business owners go this route, purchasing flood insurance is an add-on to their current property policy. All major insurance companies, such as Chubb, Travelers, Zurich, and Liberty Mutual, have the ability to add a sublimit for flood starting from $1,000,000 all the way up to $50,000,000. The main benefit of having flood insurance with the same company who insures the building is congruency should a claim occur. You have one carrier and one adjuster deciding whether to pay the claim from the flood coverage or the property coverage. With NFIP or excess and surplus insurance, flood coverage is a separate policy with different definitions, terms, and conditions. This could lead to a situation where both the flood carrier and property carrier are saying the other should be paying the claim, leaving the insured in the middle with an unclear direction on who is paying the claim.
Overall, flood insurance is different for every business owner. There are potential lender requirements to consider, along with what flood zone the building is located in, and what deductible the insured is comfortable retaining. All of these factors should be discussed with your commercial insurance agent before coming to an informed decision. Contact Brown & Brown of Detroit at 586.977.6300 to learn more about your flood insurance options!