The Evolving Risks Of Small Businesses is a six-part educational series to help insurance agents navigate the demands of commercial insurance, brought to you by Bold Penguin. Each month, they will highlight a new timely topic that will discuss the trends and tips of a particular risk to help business owners protect their investments. February’s topic was flood insurance coverage. In July 2024, the complimentary, completed The Evolving Risks Of Small Businesses playbook will be downloadable at www.boldpenguin.com.
The following abridged contribution is by Chris Kessler, Vice President of Corporate Development at Bold Penguin.
Flood insurance coverage: the second installment in the Bold Penguin Evolving Risks series
Flood insurance coverage is increasingly important for small and medium-sized businesses (SMBs), but unfortunately, it is often off their radar (until it may be too late). As trusted advisors to SMBs, agents do more than just sell policies; they bring awareness to risks that otherwise may be forgotten or underestimated.
Flood risks and the rising tides of flood insurance coverage
According to a recent article by the Insurance Information Institute, “Flooding is the most common and costly natural disaster in the United States, causing billions in economic losses each year. According to the National Flood Insurance Program (NFIP), 90 percent of all natural disasters in the United States involve flooding.”
According to the Federal Emergency Management Agency (FEMA), just a few inches of flooding can cause thousands of dollars of damage. The deeper the flood water, the higher the repair cost. If there is rain in your community, there is the risk of flooding - it’s that pervasive. SMBs are not immune to natural disasters.
It’s up to commercial agents to educate SMBs on these risks to close the educational gap regarding the need for flood insurance coverage. In a recent interview with Gabby Grodman, Inside Distribution Representative at Neptune Flood Insurance, she advised, “The majority of insureds are unaware that their standard insurance policy does not include flood coverage. The best practice is to make your insured aware of this gap in coverage and offer a flood quote with every stand-alone policy.”
According to a 2018 FEMA press release, “About 25 percent of businesses do not reopen after [natural] disasters.” As a trusted advisor, it's important for agents to communicate the potential devastation they may encounter without proper flood insurance coverage.
“Ninety-nine percent of U.S. counties have experienced a flood since 1998, and over 40% of flood insurance claims come from outside high-risk flood areas,” according to a 2023 FEMA Fact Sheet.
The hard market
The frequency and severity of floods has increased. The frequency of heavy rainfall events has increased by 30% in the last century. The increase in floods and natural disasters is also contributing to the hard insurance markets we are experiencing today.
There’s reason to be hopeful that innovations in the parametric flood insurance space will help fill some flood coverage gaps in the U.S. in the coming years. Flood risk is difficult to price for carriers, so what often follows is a coverage gap. New tech tools are being developed to improve the accuracy of underwriting data for conventional insurers, which could ultimately help expand access to parametric flood insurance coverage to even the smallest businesses.
The calmer waters of flood insurance coverage
The rising frequency and severity of floods have significantly increased risk for SMBs. Insurance agents have an obligation to educate customers on the “what,” the “why,” and the “how” of seeking and evaluating available flood insurance coverage along with other coverage options.
Click here for a deeper dive into ways agents can help SMBs navigate the evolving risks of flood insurance, as well as other product lines like cyber insurance and more.