FLOOD

Here’s a true story.  The name of the builder has been omitted to preserve privacy.

Back in 2012 we sold a Builders Risk insurance policy to a builder in New Jersey.  The project was near the coast.  Flood insurance could have been added to the policy, but the premium was a bit stiff given the proximity of the Atlantic and the fact it was still hurricane season.  This builder’s project was just getting underway.  A foundation had been laid, but not much else was done.  It was fairly late in the hurricane season.  Now, we all have to make business decisions that often entail risk.  Our builder made his decision, which may have been to save the cost of adding flood insurance to the Builders Risk policy.  Whatever the reason, it was only a short time later that Superstorm Sandy devasted the East Coast.  At the time, it was the second costliest hurricane on record.  Our builder had approximately $60,000 worth of materials at the jobsite when the storm hit.  It was a total loss.  None of it was covered.

There are three ways to deal with risk.  One is called avoidance.  Don’t build close to the Atlantic Ocean during hurricane season.  That’s a simple sounding approach, but hardly practical.  The second is assumption of risk.  This is the method our builder chose.  You may not think this was a conscious decision, but deciding not to insure a risk doesn’t make the risk go away.  Of course, the third method is risk transference.  We purchase insurance and in exchange for the premium we pay, we transfer the risk to our insurance company. 

I hope I’m not insulting anyone’s intelligence with these very simple ideas, but the fact is the risks of flood are seriously underestimated by many.  Here are some sobering statistics from the Federal Emergency Management Agency (FEMA):

  • Floods are the #1 natural disaster in the US.
  • Each year in the US, floods cause an average of $2.4 billion in losses.
  • Just one inch of water can cause severe damage to property.
  • Most property insurance, including Builders Risk, does not automatically cover flood losses.
  • 30% of all flood insurance claims are made in low to moderate risk areas.
  • New construction can increase flood risk, especially if it changes natural runoff paths.
  • Only about 5 million Americans have flood insurance.  Millions more are either unaware of the their risk or don’t know the options available to them.

Now that you know more about the risk of flood, what about taking a good look at your risk?  FEMA has a helpful website at  www.floodsmart.gov.  Here you can find out if your project is at risk.  Then, give us a call at 866-454-2155, extension 2124 and ask for Allison.  If you already have Builders Risk with us, she can determine if flood insurance is available.  Not insured with us, or looking for Builders Risk?  We can help.  Click here to learn more.     

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