Here we are again, it is hurricane season! Every year between June 1st and November 30th many of us prepare to batten down the hatches paying particular attention to late August through the month of September, the height of the season. For those of us in the property insurance industry, this means dealing with the possibility of wind and flood damage. Wind damage is covered by the commercial and residential property insurance plans we provide, but flood damage is not covered by those same policies. That’s right, the policies that insure your house and your office do not cover flood damage.
So what, you might say, I don’t live on the coast. Well, here are some facts you might want to consider. Floods are the number one natural disaster in the United States. Floods occur in all fifty states and more than 20% of all flood insurance claims come from outside the mapped high-risk flood zones Hurricane-related rains frequently cause flooding hundreds of miles inland. No one can really say for certain where it will or will not flood because the reality is anywhere it can rain, it can flood.
The term “flood” has a specific connotation in the insurance world, so first we should clarify what a flood is not. If a water pipe breaks in your home or office, you might have a mess, but you do not have a flood. The same holds true if a storm rips a hole in your roof and your home or office fills with rain. In these examples you do have water damage, but you also have coverage under the common commercial or residential property policy. Flood is characterized as rising water. Google a definition of flood and you will find reference to an overflowing of a large amount of water beyond its normal confines, especially over what is normally dry land. The National Flood Insurance Program (we’ll be getting to this) adds to this definition: a general or temporary condition in which two or more acres of normally dry land or two or more properties are inundated by water or mudflow.
So, what is the National Flood Insurance Program (NFIP)? In simple terms, it is a federal government program that serves as the only source of flood insurance for the public. Insurance agents still sell it like us at Wallace Specialty Insurance. The policies are often provided through third party insurance companies but the claims themselves are paid by the NFIP, the federal government.
As you might expect, there are differences between flood insurance and the other types of property insurance. The most significant distinctions are:
• Flood claims for personal property damage are paid based on “actual cash value.” That is, the policy will reduce the value of the damaged property based on its age and recognized “useful” life.
• There are limitations on the amount of coverage that can be purchased for commercial property, which can be less than the actual value of your property.
• Finally, some items that would be covered by a standard property policy are excluded on a flood policy.
To put it as plainly as possible, property located outside of a home or office building is not going to be covered. This includes structures like swimming pools, hot tubs, decks, patios, fences, and walkways, as well as septic systems. Landscaping and plants are not covered either. Also, you will not find coverage for currency, fine art, precious metals, stock certificates, jewelry, etc. Coverage for living expenses, such as temporary housing and financial losses caused by business interruption is not included either.
Now that you understand the basics regarding flood insurance, it is time to consider whether to buy a policy to cover your home or office. Before you think to yourself that it is never flooded in your area before, understand that weather is unpredictable and conditions can change. When Hurricane Harvey hit the Texas coast, properties were flooded that had never, ever flooded before. Consider that rainfall can exceed yearly averages, new construction can alter drainage patterns, storm drains can break or clog and of course, depending on what you believe, global warming may or may not be changing the world we live in. The point being the past is not a good predictor for the future.
So hopefully we will get to Thanksgiving without a named storm making landfall along our coasts this year. That would certainly be something to be grateful for. If not, the best-case scenario would be that no uninsured property was damaged.