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5 types of essential natural disaster insurance for your small business

Joshua Monen

natural disaster insurance The landslide in Washington State that killed 43 people and destroyed 49 structures in March 2014 reminds us that natural disasters pose a real threat to homes and businesses.

“A lot more businesses are within a landslide) hazard zone than probably realize it,” says Guy Gioino, senior vice president of Risk Services at HUB International Northeast.

Natural disasters such as landslides, earthquakes and floods typically aren’t covered under most standard business insurance policies.

As a small business owner, it’s your responsibility to understand the natural disasters risks in your region and how to manage them. According to the Institute for Business and Home Safety, about 25 percent of businesses don’t reopen following a natural disaster.

Here are five important natural disaster insurance coverages that every business owner should consider.

1. Landslide insurance.

According to Will Kramer, senior risk consultant at HUB International Limited, “landslides happen in every state in the U.S. In theory, any area that is either on or below a steep slope is at risk from landslides.”

But don’t assume that landslides are isolated only to areas with heavy rainfall. “California’s drought-stricken areas have an increased threat of wildfires, which in turn burns out the stabilizing vegetation. It’s common to see land- and mudslides in areas following wildfires,” says Michael Korn, managing principal of Integro Insurance Brokers.

Another important factor to consider is how insurance companies define, and cover, mudslides/landslides vs. mudflows.

For example, a mudslide/landslide is defined as a movement of earth or rock that travels downhill. And a mudflow is a river of liquid and flowing mud on the surface of normally dry land.

Mudflows are covered by flood insurance, while mudslides/landslides are not.

“Mudslide/landslide insurance is always a separate coverage that must be purchased as a stand-alone policy through a surplus lines broker,” says Karl Newman, president of the nonprofit NW Insurance Council.

If you don’t have this coverage in place and your business gets hit by a landslide or mudslide then you’ll be responsible for 100 percent of the damages out of pocket.

2. Earthquake insurance.

Many small business owners assume they’re not at risk for earthquakes unless they operate in Alaska or along the West Coast. But according to the U.S. Geological Survey, 39 out of 50 states – including New York, South Carolina, Tennessee and Oklahoma – have a moderate to high earthquake risk.

Earthquake insurance can be purchased as an endorsement to a standard business owner’s policy or as a separate policy. The policy covers damage to the structure and contents caused by shaking during an earthquake.

Deductibles for earthquake insurance are typically around 10 to 15 percent of the insured property value.

So let’s say your business is insured for $100,000 and you have a 10 percent earthquake deductible. If your business suffered a loss of $50,000 after an earthquake, you would be responsible for paying the first $10,000 out of pocket.

Premiums for earthquake insurance vary based on factors such as your location and the age of the building.

If you live in states that are more prone to earthquakes, like California or Alaska, then you can expect to pay more for your policy there than the rest of the country, according to the nonprofit Insurance Information Institute.

3. Flood insurance.

Flood insurance is another important natural disaster coverage for all business owners to consider; not just those in “high risk” areas. The Federal Emergency Management Agency FEMA) says up to 30 percent of all flood insurance claims paid by the National Flood Insurance Program are for property in areas with low to moderate flood risks.

“Far too many business owners who are exposed to flood risk have either too little or no flood coverage,” Gioino says.

You can buy a flood insurance policy to protect your business property and contents from the National Flood Insurance Program NFIP) if your community participates in the NFIP.

And flood insurance, contrary to popular belief, is relatively affordable: According to FloodSmart.gov, commercial insurance premiums start as low as $643 per year in moderate- to low-risk areas for both building and contents, while contents-only coverage starts at $185 per year.

4. Hurricane or windstorm insurance.

If your business is an area prone to hurricanes you should review your insurance policy to see if a separate wind deductible applies.

Korn says that if your business is located in an area that’s prone to high winds, insurers will typically apply a percentage deductible of between 2 percent and 10 percent of the value of the insured property. Nineteen states and Washington, D.C., have hurricane deductibles.

So if your business is insured for $150,000 and you have a percentage deductible of 2 percent, you will pay the first $3000 of a claim out of pocket.

The cost of a wind deductible typically depends on several underwriting factors, such as your property’s distance from the coast line and the how structurally sound your building is.

You may be able to negotiate a lower percentage deductible with your insurer by taking preventive actions such as installing wind shutters on your windows and doors.

5. Business interruption insurance.

Regardless of the specific risks you may face, every business should carry a business interruption policy. Business interruption insurance is an optional business insurance policy endorsement that covers losses your company suffers when it can’t conduct business after a covered event.

Under this coverage, you’ll be compensated for any income you would’ve earned if your business didn’t have to close temporarily.

Business interruption insurance is generally purchased as a package with property insurance. Some business interruption insurance may also cover other costs, including: