More than 1 million Americans have been directed to evacuate their homes and businesses along the East Coast this week as Hurricane Florence moves toward the Carolinas. Thousands of businesses may not be operating for an extended period of time depending on the extent of damage from the storm.
When a major hurricane such as Florence impacts an area, a company’s Commercial Property Insurance policy that includes wind will cover direct damage related to the building and business personal property. However, business owners need to consider whether other endorsements to their core property policy have been included to cover financial indirect losses that are likely to occur.
One such endorsement is Business Income coverage that can cover income lost when a business is not operating, relocation costs, taxes and loan payments, payroll and more. There are several important considerations when adding this endorsement to a core policy, said Blaise D’Antoni, Senior Vice President and Managing Director, Burns & Wilcox.
After a hurricane or tornado, direct damage is often a requirement for a claim. If a business is closed for a period of time because of an evacuation, its Business Income coverage likely will not be paid without direct damages.
If there is only flood damage – such as heavy rains or storm surge where wind was not a factor and there was no direct damage, business owners may not be reimbursed for business income losses even if they have a separate Flood Insurance policy.
Second, business owners must have documented history that proves what their payroll is, expected income lost and more to be reimbursed for losses.
Third, Business Income losses are a time element coverage which have a 72 hour period that essentially serves as a deductible. Following the claim-causing incident, a policy generally will not start paying out until after 72 hours have passed, D’Antoni said.
Finally, insurance carriers will often issue a “cease bind” for certain new or additional coverages such as a Business Income endorsement or Flood Insurance, when a storm is imminent. A cease bind prevents individuals from adding coverage for a policy that will cover elements of their home or business when an imminent storm such as a hurricane arrives, D’Antoni said. “You often see a cease bind being put into place three or four days before an event occurs,” he said.
“We’ve seen a cease bind issued all up and down the East Coast in recent days,” D’Antoni said. The cease bind will likely be lifted within a day or two after the incident has passed. “It’s why you don’t want to wait until the last second – it’s something you want to consider having in place before you need it,” he said.
A Business Income endorsement will not cover utilities or any loss of income that cannot be documented, D’Antoni said. “It also won’t cover partial losses if the business is still able to operate,” he added.
“It’s a complicated enhancement that you really need to work on with your insurance agent, and your agent should inform you of all the available options because there are usiness income policies that every business owner should consider and most should have.”
Powerful storms happen often – and can be devastating financially
Seventeen named storms, including 10 hurricanes, originating in the Atlantic Ocean impacted the U.S. in 2017, according to the Stormfax Weather Almanac. Six storms were Category 3 hurricanes or higher. At least two major hurricanes have hit the U.S. every year since 1997 except 2013.
The two costliest hurricanes in U.S. history were Hurricane Katrina in 2005 and Hurricane Harvey in 2017, both of which caused $125 billion in damages. Hurricane Maria ($90 billion) and Hurricane Irma ($50 billion) also caused major damage in 2017.
Almost 40 percent of small businesses never reopen their doors after a disaster, according to the Federal Emergency Management Agency (FEMA). Houston bakery owner Bobby Jucker had to shut down his business for the fifth time because of a storm after Hurricane Harvey caused $1 million in damages and lost revenue.
Promos On-Time, which sells pens, mugs and knickknacks, estimated that its sales were down as much as 40 percent for giveaway items in 2017 because of a lack of orders from the Gulf Coast region.
Business Income covers other disasters but availability varies
A Business Income endorsement will also protect owners who are impacted by fires, winter ice storms, unexpected explosions or other disasters not related to wind events.
“These are items that are likely to be localized but could have a disastrous impact on a business,” D’Antoni said. “The fact is you are more likely to suffer a fire than a weather-related storm such as a hurricane. This enhancement can support you for these more common occurrences as well.”
D’Antoni said that tornadoes are touching down in larger cities and more parts of the U.S. than ever before.
The availability of Business Income endorsements varies based on how frequently claims are made from major storms, D’Antoni said. Following Katrina, and in some cases Hurricane Harvey in Houston last year, owners had business income losses for months.
“Some carriers capped the amount of Business Income coverage they would write in the years after Hurricane Katrina,” D’Antoni said.
Flood Insurance is a separate issue
After Hurricane Katrina in 2005, there was debate between policyholders and insurance companies about what was covered. Depending on the amount of wind and other damage a property may have suffered, many business owners who had a Business Income enhancement were not covered for damage caused only by flood.
“For years there was a lot of litigation along the Gulf Coast that really pitted that wind damage versus water damage issue,” D’Antoni said. “This is another reason why you need to talk with your agent about what policies you need.”
D’Antoni said that Flood Insurance can be inexpensive for businesses not located in a flood plain. For those in a flood plain, Flood Insurance is a necessity because of the damage water can cause.
Business owners should also consider a Contingent Business Interruption policy that can cover losses suffered if a supply chain failure occurs. D’Antoni said this policy might be difficult for some business owners to find as carrier availability is limited.
As with any coverage need, an insurance broker or agent must be consulted. Click here to forward this article to your insurance broker or agent to ask if you need this coverage, or share this with clients to start the conversation and ensure proper protection.
This information was provided by Burns & Wilcox, North America’s leading wholesale insurance broker and underwriting manager. Burns & Wilcox works exclusively with retail insurance brokers and agents to assist clients like you with their specialty insurance needs. Ask your insurance broker or agent to review your Commercial Property, Business Income Coverage or Flood Insurance policy and ensure you have proper protection.