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Understanding Flood Risk for Your Commercial Real Estate

Most real estate locations are subject to a flood risk exposure. If the property is mortgaged witha lender, it is likely that flood insurance must be maintained on the property while it is financed.Flood insurance is typically available through commercial property insurance policies if theproperty is NOT located in a Special Flood Hazard or Coastal High Hazard area as designatedin the flood zone maps. These maps are developed by the Federal Emergency Management Agency (FEMA). Flood insurance can be obtained from the National Flood Insurance Program(NFIP) for low-to-moderate risk property, high-risk flood area property and/or when coverage
is not provided in your commercial property policy. The NFIP is overseen by FEMA. Forcommercial real estate, NFIP coverage may be purchased on the building and/or the contents up to a maximum limit of $500,000 for each. Deductibles are available at various levels up to $50,000 per occurrence. Along with the specifics of the flood exposure, the limits and deductible amounts affect the premium quoted.

The loan agreements will need to be reviewed to determine the amount of flood coverage the lender may be requiring. If not negotiated out of the loan agreement upfront, it is possible that the lender will require full replacement cost or some other limit in excess of the maximum NFIP limit of $500,000. In this case, you will need to work with your insurance agent to obtain Supplemental Excess Flood Insurance in addition to NFIP coverage. There is a niche market of carriers that provide this type of excess coverage.

Several factors are used to determine the flood risk exposure — type and size of the building, number of floors, basement or crawlspace, elevation of lowest floor and geographic location to name a few. An Elevation Certificate provides this information to the insurance agent to determine the flood exposure. The Elevation Certificate does come at a cost but it is the best way to know the building’s lowest floor elevation for comparison to the Base Flood Elevation.This factor determines the property’s true flood risk to get a premium quoted. For new policies,the Elevation Certificate is required to get coverage quoted. For flood policies in place based on an outdated or no elevation certificate, it may be worth the cost to update the elevation
certificate, especially if the FEMA map has changed.

Flood Insurance Reform Act of 2012

In July 2012, the U.S. Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) which called on the FEMA and other agencies to make a number of changes to operation of the NFIP. Since this was passed, several revisions have taken place with significant changes implemented on October 1, 2013. BW-12 affects both homeowners and business property owners. The act implements increases in premiums through a phase out of subsidies and discounts on the insurance premiums. Premiums can increase as much as 25% annually until the premium rate reflects the full risk rate. More information and FAQ’s on BW-12
are available at FEMA’s website —

How do I find out what my property’s flood risk is?

As provided on FEMA’s Map Service Center, flood zones are defined by geographic areas.
FEMA develops flood zone maps and labels each location with flood zone classifications –
● Special Flood Hazard Areas – High Risk (1% annual flood chance event): A, AE, AH,
AO, AR, A99
● Coastal High Hazard Areas – High Risk (1% annual flood chance event with additional
hazards from storm-induced waves): V
● Moderate-to-Low Risk Areas (0.2% to 1% annual flood chance event where base flood
depths are less than 1 foot): B, C and X
● Undetermined Risk Areas are D. These are unstudied areas and have no mandatory
flood insurance purchase requirements.

A quick check of a property’s flood risk profile is available at website. A
FEMA flood map for the property can be obtained from the FEMA Map Service website at Simply enter your property address on either site. By FEMA standards,
even if a small portion of the building is touching the high risk flood zone, the entire building is
considered a flood-exposed risk.

My property is located in a high risk flood zone, now what?

Your insurance agent or broker will be able to obtain quotes for the necessary coverage for your property. Note that NFIP premiums have set standard federally regulated rates for all carriers that service the program. Thus, it is not necessary to market NFIP coverage with different brokers/agents for competitive quotes.

The following items will be needed, at a minimum, for the application process –

● Flood insurance application for NFIP quote
● Flood elevation certificate — This will be certified by a surveyor, engineer or architect.
The flood elevation certificate requires building elevations to be identified for comparison
to the Base Flood Elevation from the FEMA map. This information is used to determine
the flood risk. Typically a survey of the facility is necessary to complete the certification.
● Site plan with elevations, if available
● Recent photographs of the building from all sides. All photos must be date stamped.
Photos are required when the lowest floor elevation is 2 or more feet below the Base
Flood Elevation.

Once the quote is received and the premium paid, the coverage can be placed. For NFIP policies, coverage will take effect 30 days from when the premium payment is received by the insurance carrier.

John Vozzella, Assistant Treasurer,  The High companies