Recently, intense storms inundated Maine and New Hampshire, causing widespread flooding that damaged homes and washed-out roads. It was the fourth storm since December to cause major flooding in this area. Severe weather events like this are happening at a faster rate each year due to climate change, making preparation and response planning for flood events ever more crucial.
Purchasing appropriate coverage is a key first step in protecting your organization against flood-related risks, but there is additional work to do to mitigate loss. Taking the time to educate yourself and your organization about how to prepare and what to expect in the event of a flood is every bit as important. The following are some of the most significant things risk managers need to know about flooding and flood insurance:
Even Smaller Weather Events are Worrisome
According to the Insurance Information Institute, 90% of natural disasters in the U.S. involve flooding. Catastrophic weather events are not the only ones that can unexpectedly turn business operations upside down. Smaller events such as water main breaks, faulty fire hydrants or poor drainage in a particular area are seemingly inconsequential disruptions that can also cause serious damage to a business. Between 1996 and 2019, 99% of counties in the U.S. were affected by flooding events, leading to an average flood claim payout of $52,000, the Federal Emergency Management Agency (FEMA) reported. Despite this risk, flood events remain among the most misunderstood disasters affecting an organization’s operations and bottom line.
Flood Risk Can Change Over Time
As a risk professional evaluating your insurance needs, it is tempting to conclude that there is no reason to pay premiums for something that has never happened before. However, statistics show that costly flood claims often occur in areas not usually prone to flooding. Additionally, according to FEMA and the National Flood Insurance Program, flood risk changes over time due to circumstances like new construction, changing weather patterns or terrain changes. Considering that just one inch of water can cause $20,000 of damage to your business, not to mention the time spent dealing with remediation, loss of inventory and business interruption, organizations need to consider a separate flood policy or, at a minimum, fully understand what is at stake if they opt not to purchase one.
Every Organization Needs a Disaster Recovery Plan
Since flooding is more prevalent and will continue to increase in frequency and severity, prepare your business by conducting regular checks. Insurer Crawford and Company sees flood claims peak in September, so risk professionals should create a habit of reviewing policies, procedures and contingencies each spring. As with all disaster planning, a clear designation of responsibilities associated with developing and implementing the plan is crucial to success. The plan should be accessible off-site to all necessary parties and include verification of agent names, contact information and policy numbers.
It is also worth noting that most flood insurance policies do not cover business interruption, so it is essential to build contingencies into the disaster plan. Consider purchasing a separate plan to cover those costs as part of your overall risk mitigation strategy.
Be Aware that Advance Warning is Uncommon
Unfortunately, it is rare to know about an impending flood event in advance. However, in some instances and regions, you may be warned and can keep in mind some simple steps to prevent damage before the flood occurs. Disaster plans should include designated teams that will remove rugs and any fabric items as these are the surfaces that are most likely to grow mold. These teams should do what they can to minimize inventory loss by moving such items or otherwise protecting them from water.
A Current Office Inventory Helps Save Valuable Time After a Loss
Flood insurance experts recommend that organizations take periodic inventories of their office and commercial spaces as part of their disaster preparedness plans. Take photos of office furniture, specialized machinery, electronics, appliances and other fixtures. These images will help streamline the claims filing process. Ideally, try to retain the serial numbers of on-site electronics as most policies require them for items valued over $100.
After a Flood, Start the Claim Immediately
In the event of a flood, your first call should be to your agent or broker so they can assign an adjuster as soon as possible. Then, it is time to start documenting the loss. If you can get photos of the flood while it occurs, they will help tremendously with your claim. Document all items that will need replacement while in their damaged state. If the total value of your claim is over a certain dollar amount, the adjuster must bring in a CPA to validate information, so meticulous documentation is crucial. For inventory losses, you must document the damage to each item, which means opening boxes and crates. Note that your insurance carrier will reimburse you for the out-of-pocket cost of an item as opposed to what it would sell for.
Once you document the damage in photos, remediation should begin immediately. It is the policyholder’s responsibility to hire a remediation company, and it is worth noting that the law prohibits adjusters and agents from recommending those contractors. Remediation companies are also not always familiar with exactly what is and is not covered by a policy, so it is important to understand what your coverage includes and to contract for services accordingly.
Document, Retain and Remove
Wherever you purchased it, flood insurance is a direct physical loss policy, meaning water must physically change something for insurance to cover the damage. Before the remediation company comes in and guts the impacted areas, it is important to retain samples of trim, carpet, flooring and cabinets, as well as the contents of any affected cabinets. Note that flooding can also compromise HVAC systems and appliances.
Work with the remediation company to document and then remove all items that can cause mold. Flood insurance policies generally do not cover mold, mold-related damage, mold remediation or any HEPA equipment needed to make the space usable.