The powerful East Coast storm that has put many communities from Maryland to Maine under a flood watch begs one very important question to business owners in New Jersey: Do I have flood insurance?
The answer, many soon will find out is, “No” — according to data from the National Flood Insurance Program and insurance agents.
Even business owners who do recognize flood as a significant risk may not be insuring for it. By estimate, 85% of business leaders mistakenly believe that property insurance policies cover flood risk, according to a 2023 national survey by Chubb, which makes its U.S. base in Warren.
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The primary provider of flood insurance is FEMA’s National Flood Insurance Program. Current NFIP commercial flood insurance coverage limits are $500,000 per structure and $500,000 for building contents. A flood policy for a commercial building covers the building/foundation as well as equipment and systems and permanently attached fixtures.
Businesses mostly buy coverage through about 50 insurance companies that take part in NFIP’s “Write-Your-Own” flood insurance program, through which these companies sell and service flood insurance policies underwritten by the federal government.
But, in recent years, private flood insurance (meaning insurance policies issued by a private insurer, not the federal government’s NFIP) has boomed.
A turning point came in 2019, when federal regulators allowed mortgage lenders to accept private flood insurance, according to the Insurance Information Institute.
In 2022, private flood insurance represented 32% of total residential/commercial flood insurance premiums of $4.09 billion nationally, noted the Insurance Information Institute. That was up from 12.6% in 2016.
Many private flood carriers offer much higher limits than does NFIP. Neptune, for example, offers building coverage up to $10 million.
NFIP flood insurance policies are priced based on a new methodology called “Risk Rating 2.0,” through which NFIP aims to have premiums better reflecting a property’s flood risk as compared with prior years. NFIP continues to publish flood maps, which were primarily used to price flood policies. But those maps no longer determine premiums; other factors are now used, according to NFIP.
Aaron Levine, owner of independent insurance agency LG based in West Long Branch, notes flood risk requires consideration as part of an overall risk management plan.
“As a business owner myself, understanding potential losses from flood, fire and any other major threat that we have, it’s important for business owners to have reserves on hand to be able to weather a storm that comes through,” he said.
“And, if there is water damage, (it’s essential to) have that contingency plan just to be able to move your inventory and understand what it might look like to get reopened and get reopened as quickly as possible.”
Levine said business owners need to have a conversation with a risk manager or insurance agent while putting those contingency plans in place.
Those discussions bring to light constructive steps businesses can take, such as learning the flood rating for their location, considering the resiliency of their locations and raising up refrigeration, electrical and HVAC equipment.
“A well-constructed building, if a flooding event occurs, can be cleaned and reopened in a couple of days,” Levine said.
“I’ve been lucky enough to only have had a handful of claims. Some carriers are definitely going to handle claims differently. They’re going to be a little bit more proactive about using their own staff versus a third-party contractor for the adjusting of the claim. That is going to make a difference.”