By Chris Dunlap and Tom Delark
As NFIP-backed commercial properties wade through the government-funding program’s uncertainties, it may be a chance to explore alternatives.
The National Flood Insurance Program backs as many as five million U.S. mortgages associated with properties in or near FEMA flood zones. The program is more than $25 million in debt , and was extended once again to November 30, 2018, without reforms. The NFIP is plagued by its adverse risk selection and lack of private market participation - all factors that have caused insureds to search for other options.
NFIP prices have risen to ease the government burden and flood maps have been re-drawn to incorporate additional properties in or near high-risk flood zones, positioning private carriers to finally offer a viable NFIP coverage alterative. Eligible businesses hope this brings relief – before the storm.
NFIP coverage has its limits
NFIP covers insureds for commercial property damage up to $500,000 for the building and its structure and up to $500,000 for building contents. No additional monies are granted beyond each category limit, even if the policy still contains funds under the other.
In addition to the relatively low coverage limit for a commercial business, NFIP lacks business interruption (BI) coverage, which reimburses businesses for loss of sales during a disaster and finances their temporary relocation when necessary – a critical add-on for any business in a flood zone.
Privatized flood insurance eligibility and considerations
Private flood insurance is positioned to offer improved customer service and business interruption coverage - but not all NFIP insureds are eligible. Because of the great financial risk involved, private carriers will be highly selective when offering flood coverage. Typically, only those businesses and individuals who are located above sea level, and have not had a flood loss will be considered for privatized coverage.
Should you be eligible, here are three things to consider:
- You may lose your flood zone status. Leaving the NFIP means losing your grandfathered flood zone status. Should you want to return to the NFIP, you’ll be reclassified in a new flood zone, which will likely raise your premium.
- Try to secure a multi-year policy. Because private flood coverage is relatively new, secure a multi-year policy from the start so you won’t be suddenly left without coverage down the road.
- Ask for Business Interruption coverage. Hurricanes can leave a business devastated and business interruption coverage can shelter your loss of income during a disaster until your business is back on its feet again. BI coverage is the biggest advantage of privatized insurance. NFIP policies don’t offer it. Therefore, should you go with privatized flood insurance, you’ll need to also ask for it.
HUB can help
Current NFIP uncertainty and policy limitations make it an auspicious time for NFIP insureds to consider other alternatives. Your HUB advisor can help determine just what is right for your commercial facility. Contact us today.