National Flood Insurance Program Making Sense of Flood Insurance for Commercial Properties
INTRODUCTION Navigating the complexities of flood insurance for commercial properties can be a challenge, particularly because commercial building classifications, coverages and rates can vary significantly from other types of insurance. Aon National Flood Services (NFS), created this ebook as an overview guide for insurance agents who want to understand the basics of flood insurance for commercial properties offered through the National Flood Insurance Program (NFIP). In a complex flood insurance market, staying informed enables agents to engage in meaningful conversations with clients that own/occupy commercial properties. This is part of our ongoing effort at Aon NFS to educate and inform insurance agents as they help their clients protect what is important. Aon National Flood Services 555 Corporate Drive Kalispell, MT 59901 www.nationalfloodservices.com (406) 756-8656
TABLE OF CONTENTS 01. Flood insurance for commercial properties 02. Flood insurance building classifications 03. Non-residential buildings 04. Other non-residential buildings 05. NFIP General Property Form F-123 06. Additional considerations for commercial properties 07. Additional agent resources
01 FLOOD INSURANCE FOR COMMERCIAL PROPERTIES Why it is important According to the Federal Emergency Management Agency (FEMA), at least 25 percent of small businesses never reopen their doors following a disaster. It only takes a few inches of water to cause tens of thousands of dollars in damage. In fact, from 2010-2014, the average commercial flood claim was nearly $89,000 1. Commercial property insurance generally does not cover flood damage. Flood Insurance for Commercial Properties is essential in protecting a business property against financial loss that could occur as a result of a flooding event. 1 FEMA.org
02 FLOOD INSURANCE BUILDING CLASSIFICATIONS When it comes to commercial property insurance, agents should know that the key differences between Property and Casualty (P&C) and flood insurance are building classifications and coverages. Note: This ebook focuses on the non-residential classification. Buildings are classified as residential or non-residential and have additional sub-classifications: Other residential - five or more units (e.g., apartments, dorms) Other non-residential (e.g., barns, sheds, churches, schools) P&C classifications identify buildings as personal or commercial Personal Commercial Flood insurance building classifications identify buildings as residential or non-residential Residential Non-residential
03 NON-RESIDENTIAL BUILDINGS Non-residential business A non-residential business is a commercial enterprise primarily carried out to generate income and coverage is for: A building designed as a non-habitational space A building designed for use as office, retail, wholesale, hospitality space or for similar uses Non-residential business examples: Retail shop Restaurant Mercantile building Factory Warehouse Nursing home Industrial building Office building Hotel/motel (not extended stay, <6 months) Licensed bed & breakfast Commercial garage Commercial agricultural building
04 OTHER NON-RESIDENTIAL BUILDINGS Other non-residential building This is a subcategory of non-residential building A non-habitational building that does not qualify as a business or residential building A small business cannot use this category Other non-residential building examples: House of worship Non-profit building School State & local government building Non-commercial farm building Silo Grain bin Tool/storage shed Garage Pool house Recreational building
05 NFIP GENERAL PROPERTY FORM F-123 The NFIP General Property Form F-123 offers commercial policyholders coverage for: Building Property up to $500,000 Personal Property up to $500,000 For businesses, personal property refers to the contents of the business and will include stock as defined in the policy. The NFIP encourages business owners to purchase both types of coverage. A lender might require that a certain amount of flood insurance coverage is purchased. To learn more about structures covered under the NFIP Standard Flood Insurance Policy General Property Form (#F-123), visit: NFIP_GenPropForm_F123 For non-residential (income generating) business and other non-residential (non-income generating or not-for-profit) business, the building and contents are always actual cash value.
06 ADDITIONAL CONSIDERATIONS FOR COMMERCIAL PROPERTIES Additions and extensions NFIP insures additions and extensions attached to and in contact with the building, by means of: Rigid exterior wall Solid load-bearing interior wall Stairway Elevated walkway Roof NFIP insures at the insured s option, additions and extensions connected by any of these methods may be separately insured. Agents have the ability to write/insure the property as a single or multiple policy. If you write it as one policy, you have the advantage of avoiding surcharges or fees. If you need more coverage, you have options. NFIP will insure additions and extensions.
Tenant s Coverage Building and Contents Coverage Tenant contents coverage includes improvements and betterments limited to 10% of contents limit. This includes improvements such as: Fixtures Alterations Installations Additions If building coverage is purchased by tenant due to lease agreement: Must be at tenant s expense Options reduces contents coverage limits Building owner must be named on policy Tenant may also be named on policy Coverage for tenant-owned contents must be written on separate policy in name of tenant only
Exclusions Below is a partial list of Standard Flood Insurance Policy (SFIP) Exclusions The Standard Flood Insurance Policy (SFIP) does not provide coverage for: Loss of revenue or profits Loss of access Loss of use Loss from interruption of business or production Additional living expenses NOTE: This list is not all-inclusive. Be sure to review the NFIP manual for complete listings https://www.fema.gov/flood-insurance-manual
07 ADDITIONAL AGENT RESOURCES For more information, visit: The National Flood Insurance Program Summary of Coverage for Commercial Property at https://www.fema.gov/media-library/assets/docume nts/34505 NFIP Flood Insurance Manual https://www.fema.gov/flood-insurance-manual Standard Insurance Policy Forms https://www.fema.gov/national-flood-insurance-pr ogram/standard-flood-insurance-policy-forms
Aon National Flood Services leads the flood insurance industry, serving approximately 60% of the NFIP, based upon policies, premium, and participating carriers. Unmatched in claim handling, NFS has settled 215,000 claims and processed more than $11.2 billion in claims payments over the last decade. In addition to serving the NFIP, comprehensive private flood solutions are available through the NFS subsidiary, NFS Edge Insurance Agency, Inc. 555 Corporate Drive Kalispell, MT 59901 (406) 756-8656 www.nationalfloodservices.com Aon plc 2018. All rights reserved. This ebook is for general informational purposes only and is not intended to provide individualized legal or regulatory advice. It is not intended to be a substitute for any NFIP publications.