Natural disasters can be devastating to businesses. We’ve all seen the devastation that tornados and hurricanes leave in their wakes. However, floods and hail damage each account for over a billion dollars in insurance claims every year.

Damage from many types of natural events, such as lightning or wind, will generally be covered by standard commercial property insurance. However, both flood and hail damage need to be looked at individually as insurance coverage may not be as simple as it seems it should be. In this article I will deal with each of these natural disasters individually for reasons that will be apparent as we proceed.

FLOOD DAMAGE

The two tables below list the 10 states that lead the nation in 2015 in the number of flood damage claims and in the amounts paid in respect of those claims.

The following Q & A will help you understand flood coverage and determine if your business needs it:

Q. Does my commercial property insurance include flood coverage?

A. Generally, no. Damage from flooding, including the rising water generated by a hurricane storm surge, is typically NOT covered under standard commercial insurance policies. Flood insurance is available from the federal government’s National Flood Insurance Program (NFIP).

Q. What does flood insurance cover?

A. Flood insurance covers damage to property and contents caused by flood. This includes losses from water overflowing rivers or streams, heavy or prolonged rain, storm surge, snow melt, blocked storm drains, broken dams or levees, or other similar causes. To be considered a flood, waters must cover at least two acres or affect two properties. In 2015, the average flood claim amounted to more than $46,000 and the average policy premium was $700.

Q. Should I purchase flood insurance for my wash operations?

A. If your commercial property is located in a high-risk flood area and you have a mortgage from a federally regulated or insured lender, you are required to purchase flood insurance. Location is a key consideration in determining the need for flood insurance. To determine your operation’s proximity to flood areas simply go to FEMA’s Flood Map Service Center (https://msc.fema.gov/portal). It’s also important to know that even if your operation is not required to purchase flood insurance it may still be prudent to do so. (One third of all Federal assistance for flooding is paid in areas outside of flood zones.)

Q. What should I know about purchasing flood insurance?

A. Flood insurance is only available from NFIP and very select private insurers. NFIP coverage may only be purchased through an insurance professional; you cannot buy it directly from the government. To find a local insurance professional who is trained and familiar with the National Flood Insurance Program, contact NFIP at (888) 379-9531 for an agent referral. Typically, there’s a 30-day waiting period from the date of purchase before your policy goes into effect. So, don’t wait until the water is rising to purchase coverage. Commercial flood insurance provides up to $500,000 of coverage for your building and up to $500,000 for its contents. Additional coverage amounts are available by purchasing “excess insurance” amounts.

HAIL DAMAGE

If your car wash operation is in a part of the country that is particularly susceptible to wind/hail/tornado storms you have probably seen changes in your commercial property insurance coverage. Rates have increased significantly for buildings in high-risk areas, and/or many carriers are adding separate wind/hail deductibles to policies. It’s important to first understand why this is happening.

Insurance carriers rely on data to develop risk profiles for geographic areas and, ultimately, that determines premium rates. Hail alone accounts for over $1 billion in damage to property and inventory each year. There were 5,411 major hailstorms in 2015, with the vast majority of storms occurring in April, May, and June. The states with the most damage in 2015 were Texas, Kansas, Nebraska, Oklahoma, and South Dakota. From 2000 to 2015 insurance carriers paid more than $57 billion in hail losses. Most of those losses — 70 percent — occurred during the past six years.

If you own a car wash in a state where hail/wind storms are a regular occurrence, you can expect to see your insurance carrier taking action to mitigate their exposure to property claims. Many insurance carriers have chosen to do this through the use of separate property deductibles for wind/hail events.

Those deductibles come in one of two forms; a flat stated dollar amount or a percentage deductible.

Here is how each works:

Flat Stated Deductible: Under this type of situation if the deductible is stated as $500 that amount would simply be deducted from your total claim payout. Example: Your insurance carrier approves your claim and has determined that you have an insured loss worth $25,000 — you would receive a claims check for $24,500.

Percentage Deductible: This is the method many carriers are using to mitigate their risk. It is imperative that you understand completely how this works. The deductible is based upon a percentage of your building’s insured value. Example: Your car wash (building) is insured for $500,000 and your insurance policy has a 2 percent wind/hail deductible. This means that $10,000 ($500,000 x 2% = $10,000) would be deducted from the amount you are reimbursed on a claim. In the event of the $25,000 insurance loss from above, you would be paid $15,000.

SEEK ADVICE

If your wash operation is located on the top of a magical mountain and you do not have any of these worries, thank your lucky stars and move on. However, if you’re among the rest of us, take the time to locate an insurance professional that is well versed in these disasters and how they may affect wash operations.

Be certain to take time to review your commercial property policy closely, paying particular attention to your property deductibles. Ask your agent if your coverage package includes any separate deductible verbiage for wind/hail losses. Also ask your agent to offer you several deductible options as it could make a significant difference in your total insurance premiums.

If your current agent is not able to advise you about flood concerns and how it may affect your operations contact the National Flood Insurance Program for an agent referral. Remember there is a waiting period for this coverage, so plan accordingly.

Dan Tharp, CIC, RWCS is licensed in all states (except Alaska & Hawaii) and is the vice president of sales for The Insurancenter and the head of the car wash division. Dan has been assisting business owners protect their operations, customers, and employees for over 25 years. For questions regarding this article or any other insurance matter he can be reached at DTharp@theinsurancenter.com or by calling (800) 444-8675.