From flood waters, property damage, power loss and spoiled food, coping with the aftermath of a powerful storm could be very troublesome for real estate owners and operators. Therefore, during the Atlantic hurricane season, which officially runs from June through November 30, real estate businesses must take a multi-pronged approach to safety: first, crisis communications, management and business continuity planning and then back-up efforts with the proper insurance coverage.
2020 set a new record with 22 separate, billion-dollar weather and climate disasters, according to Severe Weather EU. After the record-breaking Atlantic hurricane season last year, it appears likely that 2021 is in for the sixth consecutive above-average year.
While businesses have no control over the weather, taking the proper steps before a hurricane can lessen the impact. Generally speaking, the three main goals of any disaster management plan are to manage the business during the crisis, resume normal operations as quickly as possible and recover losses when it is over. By taking these goals into account when surveying the most critical areas of the business, companies can determine what steps they need to take to be fully prepared for hurricane season and beyond.
Coverage for When It Strikes
Even businesses with the proper plans in place can suffer a setback from a storm. Unfortunately, according to the Munich Re NatCatService, as little as 28% of the $5.2 billion economic losses from Natural Catastrophes were insured over the period 1980-2019, due to gaps in coverage for a multitude of reasons, noted MunichRE.
It’s important to examine your insurance policies (and any potential coverage gaps) with your professional advisor as there are a variety of policies to help coastal and non-coastal businesses recover from an event — each involving a different aspect of the restoration. All businesses in hurricane zones are at risk no matter where they are located.
Business Income Coverage
Review your business income coverage limits, which include loss of income as a result of an event, to ensure they are sufficient. Extra expense coverage often accompanies business income coverage for necessary costs, such as relocating operations to a temporary location because of storm-related damage.
Most business property policies exclude flood coverage. In addition, businesses typically buy minimum flood coverage limits but don’t consider that floods can come from even minor storms or no storm at all.
Do you have a percentage or flat deductible? A calendar year or occurrence deductible? If your business has a lot of locations, occurrence or percentage deductibles could be more costly. Additionally, many policies will have lower deductibles for wind and hail events than for a named storm.
A Hard Market
At this time, the insurance market is turbulent, with rate increases across the board. Insurance carriers are being much more strict about inspections and recommendations. Cancellation notices are being issued if the insured is not implementing the recommended action items, and it would be a massive challenge to find cost-effective quotes if a business has to remarket mid-term.
So what can you do? In partnership with your insurance advisor, demonstrate to the marketplace why they should want your business. Be proactive on safety to reduce potential for claims and on contractual risk transfer. Demonstrate property upgrades where possible, i.e., roof, electrical, plumbing, etc. Implement recommendations from previous insurance carrier inspections. If you are not able to implement, be able to demonstrate and clearly explain the rationale for not doing so. When implementing risk control measures, the first consideration should be given to improvements that have the greatest influence on loss severity. Regarding past losses, be prepared to explain corrective actions taken to prevent similar losses in the future.
Hurricanes can pose a major challenge for the real estate industry. By taking the appropriate steps ahead of time and working with experts, real estate companies can help to ensure that they can weather any storm. Review your policy with an experienced insurance advisor now to ensure that you have the coverages and policy limits that you need to be adequately protected before a storm strikes.
Hub International Northeast