Floods happen. Are you prepared?
Floods can happen anywhere—more than 20 percent of flood claims come from properties outside the high-risk flood zone, according to the Federal Emergency Management Agency (FEMA). Architects are impacted by flood through exposures at their offices, homes, and clients’ properties. So it’s important to understand what flood insurance covers—and what it does not cover—and what you need for your situation.
What are the 10 most important things to know about flood insurance?
- Most homeowners’ policies do not cover flood damage. Private homeowners’ policies generally cover wind damage and, in certain cases, water damage from storm surges.
- The federal government provides flood insurance for a property through the National Flood Insurance Program (NFIP), run by FEMA. Underwritten by the government, NFIP policies are generally sold through private insurance agents, and in some areas, primary flood insurance may be available through private insurers.
- You may be required to have flood insurance. Congress has mandated federally regulated or insured lenders to require flood insurance on mortgaged properties located in high-risk flooding areas. Even if your property is not in a high-risk flood area, your mortgage lender may require you to have flood insurance.
- Flood maps support NFIP and provide the basis for community floodplain management regulations and flood insurance requirements. The flood zone where a property is located will impact insurance availability and pricing.
- There are three NFIP policy forms depending on the type of insurable property to be covered—the Dwelling Form, the General Property Form, and the Residential Condominium Building Association Policy Form—and each has specified limits of coverage.
- “Flood” is defined in the NFIP flood insurance policy. Notable exclusions on the NFIP coverage form include water, moisture, mildew and mold damage; business income; and sewer or drain back-up.
- For business properties, a major drawback of relying on the NFIP program is the lack of business interruption or extra expense coverage.
- Flood coverage can also be secured outside of the NFIP program. Coverage availability and limits depend on the location of the property (i.e., which flood zone it is in) and the insurer’s risk appetite.
- Business interruption (BI) insurance covers insured businesses for income loss from unavoidable disruptions of regular operations as a result of property damage and sometimes includes utility service interruption, a government evacuation order, or substantially impaired access to a business’s premises.
- Many commercial property insurance policies provide low aggregate limits or exclusions for losses caused by “flood,” “storm surge,” “named storms,” for damage caused by mold that almost always follows a flood event, and for wind damage. If your current package policy coverage is lacking or insufficient, work with your insurance agent to see whether to replace, broaden, or supplement your current program.
The flood insurance market is becoming more restrictive and more expensive while the overall property market itself is changing. It’s important to understand the nuances of flood and related disaster insurance coverage—and then meet with an experienced insurance broker to discuss your needs and options. The AIA Trust developed a risk management guide to help members protect themselves, reduce the impact of flood-related damage and business interruption, and provide greater value to clients and communities.