More Businesses Seek Government Flood Insurance After Sandy: Marsh

November 16, 2012

More businesses are expressing interest in purchasing flood insurance coverage from the National Flood Insurance Program (NFIP) in the wake of Superstorm Sandy’s heavy rain, record storm surge, and resulting widespread flood damage, according to insurance broker Marsh.

Although most companies purchase commercial flood insurance through the private market, more are now inquiring about purchasing additional coverage through the NFIP, Marsh said. When used in tandem, NFIP coverage can mitigate or “buy down” large deductibles associated with commercial flood policies or simply provide additional coverage.

Under the NFIP, non-residential businesses can purchase up to $500,000 in building and $500,000 in content coverage, while residential businesses can purchase up to $250,000 in building and $100,000 in content coverage.

Marsh said it can place up to $30 million in excess of NFIP flood insurance, including business interruption, with A-rated insurance capacity.

“NFIP coverage and commercial flood insurance policies are complementary in that they can be structured to work in concert with one another,” said Duncan Ellis, Marsh’s U.S. Property Practice Leader. “That said, many businesses rely solely on the commercial marketplace and do not purchase additional coverage through the NFIP, despite the widespread availability and relatively inexpensive cost. Given the massive flooding from Sandy, businesses appear to be re-thinking their approach to flood coverage.”

“We are seeing an uptick in the number of calls inquiring about NFIP coverage since the storm,” said Patrice Collingwood, leader of Marsh’s Flood Service Center, which specializes in placing NFIP coverage. “By purchasing NFIP coverage in addition to commercial flood, companies impacted by a flooding event can direct moneys that would otherwise be set aside to pay for deductibles toward other recovery efforts.”

NFIP Coverage

According to NFIP, almost 40 percent of small businesses never reopen following a disaster. Over the past five years, the average commercial flood claim has been about $75,000.

Out of NFIP’s more than 5.5 million policies, only about 283,000 are non-residential. The policy limit of $500,000 is often inadequate for businesses, so many turn to commercial insurers for flood insurance.

Many non-residential buildings in a moderate-to-low risk area qualify for NFIP coverage at a preferred rate for building and contents coverage. Contents-only coverage is also available. Commercial coverage provides up to $500,000 of insurance to protect a building and up to $500,000 to protect contents.  Preferred risk premiums start at $584 per year for both building and contents, while contents-only coverage starts at $167 per year.

Businesses that do not qualify for a preferred risk NFIP policy may be able to purchase a standard rated policy.  Standard policy premiums start at $1,535 for building and contents, and at $630 for contents-only. Premiums for buildings in high risk areas start at  $1,750 for buildings and contents and $$850 for contents-only. NFIP charges higher rates for buildings in coastal areas: $2,280 to start for buildings and contents and $1,110 for contents-only.

NFIP Policies in Force by Occupancy Type

Single Family Home

3,794,882

2 to 4 Family Unit

171,975

Condominiums

1,128,130

Other Residential

164,381

Non-Residential

283,498

Unknown Occupancy

1

All Policies

5,542,867

 

 

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