Commercial flood insurance: What is it and what does it cover?

What does commercial flood insurance cover?

If your business property experiences flood damage after a storm or other event, commercial flood insurance will help cover your repair costs. While coverage varies, a flood insurance policy, in most cases, will cover damage to your building and the contents inside.

Building coverage typically includes:   

• Building equipment and systems. This would include electrical, plumbing, water heaters, HVAC equipment, pumps, fire extinguishers and sprinkler systems.
• Fixtures that are permanently attached to the building. This would include items such as walk-in freezers, carpeting, paneling, awnings and canopies, outdoor antennas, built-in bookcases and cabinets.
• Machinery and equipment damaged by floodwaters.
• Foundation walls, staircases and anchorage systems.

The contents coverage of a commercial flood insurance policy will pay to repair or replace any property damaged by a flood. In some cases, the contents coverage may be a separate policy with a separate premium.

A standard commercial flood insurance policy will usually cover the following contents: 

• All of the furniture and fixtures in the building.
• Business stock, which includes products held in storage or for sale as well as raw materials and in-process or finished goods.
• Contents that are not permanently attached, which includes window air conditioners, microwave ovens, dishwashers, carpets and rugs.
• Personal clothing and uniforms.
• Fridges and freezers as well as the food inside them.
• Original artwork, collections and other high-value items, usually with a cap.
• Self-propelled vehicles that aren’t licensed or registered, which can include golf carts, tractors, ATVs and other vehicles if they are stored inside the insured building and are used for the business

What isn’t covered by commercial flood insurance?

Like most insurance policies, commercial flood insurance has exclusions, including:

• Financial losses that are the result of business interruption or the loss of the use of an insured property. Other policies, such as business interruption insurance, can cover these losses.
• Damage caused by poor maintenance that could have been avoided, including damage from moisture, mildew or mold.
• Damage caused by sewer or drain backup.
• Currency, precious metals and stock certificates.
• Property and belongings located outside of the insured building. This can include trees, plants, wells, septic systems, walkways, decks, patios, fences, hot tubs and swimming pools.
• Most self-propelled vehicles that are licensed or registered. This includes company vehicles, delivery trucks and employees’ personal vehicles. 

It’s important to read your policy in full and ask your agent or insurer about any exclusions or coverage gaps.

Does my commercial property insurance cover flood damage to my business?

Like a homeowner policy, flood damage is excluded from standard commercial property insurance policies. You need a separate flood insurance policy to protect your business.

If your business is damaged or destroyed by flooding and you are not carrying a commercial flood insurance policy, you’ll have to pay repair costs out of your pocket.

Does my small business need commercial flood insurance?

In most cases, the answer is yes. 

 If your building has a mortgage from a federally regulated or insured lender and is in a high-risk zone, you’re likely required to carry flood insurance.

Even if your business is in an area that is not prone to flooding, experts say you should consider a commercial flood insurance policy.  According to FEMA data, more than 20% of all flood insurance claims originate in areas outside of high-risk areas. Natural disasters are not the only cause of flooding; construction mishaps, dam leaks or breaks, or other unforeseen incidents can lead to major flood damage.

Remember, most commercial property insurance policies exclude flood damage.

“A typical commercial insurance policy specifically excludes flood damage so purchasing separate flood coverage for your property and contents is an important consideration,” says the Rocky Mountain Insurance Information Association’s Walker.

How does commercial flood insurance work?

Most commercial flood insurance policies have a 30-day waiting period before coverage kicks in, with some exceptions, so you cannot wait until a storm is headed in your direction to put a flood insurance policy in place. You will not be covered if your business is flooded within the 30-day waiting period.

Once the waiting period is over, coverage takes effect.  

If you need to file a claim, NFIP says to take these steps:

• Report your loss immediately to your insurance company or agent. You can and should ask about an advance payment.
• Collect receipts to verify that repairs from previous claims were completed.
• Separate your damaged property.
• Take photos of any damaged property you need to dispose of quickly.

How much commercial flood does my small business need?

Coverage limits vary by insurer. In most cases, a private market policy will have higher coverage limits than an NFIP policy, which has strict coverage caps.

All NFIP policies have coverage limits of:

• Up to $500,000 for the building
• Up to $500,000 for the building contents

Philadelphia Insurance, however, offers a maximum building limit of $5 million and a contents limit of $1 million.

Some other insurance companies may offer limits of $1 million or higher. 

In many cases, if your building is worth more than $500,000, it may be necessary to carry an NFIP policy up to its coverage limits and add private market coverage as excess coverage to fully protect your building and contents.

As noted previously, many commercial flood insurance policies have separate building and contents coverage, which means each policy has a separate deductible. It is best to check with your insurer regarding coverage to ensure your policy protects your building and contents.

Which companies sell commercial flood insurance?

Commercial flood insurance is available via the National Flood Insurance Program. These policies are sold via agents in the private market. A FEMA directory of insurers selling NFIP flood policies which can be searched by state can be found here.

As noted above, NFIP policies have coverage caps, so, depending on the value of your building and contents, you may need to find additional coverage in the private market.

Commercial flood insurance policies can be purchased in the private market, but not all insurers offer this coverage. Some insurers that do:

• Nationwide
• Neptune
• Philadelphia Insurance

How much does commercial flood insurance cost?

The price of commercial flood insurance can vary greatly. Insurers consider several factors when setting a flood insurance rate, including:

• Location and flood zone designation
• Elevation of building and construction materials
• Coverage limits and deductibles
• Deductibles
• Risk mitigation efforts
• Claims history

Given all the variables, the cost can vary dramatically, from a few hundred dollars to several thousand.

Are there ways to save on commercial flood insurance?

Commercial flood insurance can be expensive depending on the risk profile of your business. 

One of the best ways to save on commercial flood insurance is to mitigate the flood dangers associated with your business. 

“Commercial business owners should work with a professional to look for ways to mitigate potential damage from a flood, such as installing flood barriers, adding flood vents, and elevating the commercial property or mechanicals, if possible,” says Tyler Ardron, vice president and managing partner of Risk Reduction Plus Group, an insurance broker.

Here are a few tips to keep your premium affordable:

• Shop your coverage: Premiums vary between insurers as they rate risk differently. Shop your coverage with both the NFIP and private insurers. Make sure you compare apples to apples when comparing coverage levels and deductibles.
• Locate machinery and equipment on a higher floor: Keeping your machinery, inventory and HVAC system on a higher floor can help prevent expensive damage and repair costs if your building floods. 
• Install flood openings: Flood openings are designed to equalize pressure on the walls when standing or slow-moving water is present. Consider having them installed in your building to lower your insurance costs.
• Up your deductible: Commercial flood insurance often comes with two deductibles, one for the building and one for the contents of the building. Raising one or both of the deductibles should lower your premium. Always choose a deductible that you can easily afford if you have to file a claim.
• Relocate: While this may seem extreme, if your business is in a high-risk flood zone, moving your business to another building may make sense, particularly if you rent your current space.

What our expert says

Q: Does commercial property insurance cover flood damage?

Carole Walker Executive director of the Rocky Mountain Insurance Information Association.

"A typical commercial insurance policy specifically excludes flood damage so purchasing separate flood coverage for your property and contents is an important consideration."