Floods can be devastating to businesses of all shapes and sizes. The natural disaster has no partiality to any business – It can affect any business that’s in its path of destruction.
There doesn’t seem to be an escape from flooding, as 90% of natural disasters in the country involve some degree of it. What’s more, floodplains are expected to expand by about 45% by 2100, according to a study commissioned by the Federal Emergency Management Agency (FEMA). Because of this, you can expect flood damage to be widespread and costly. And making a water damage insurance claim is never an easy process.
Damages Caused by Floods
Aside from being the most common natural disaster in America, flooding is also one of the costliest. According to the NOAA National Centers for Environmental Information (NCEI) U.S. Billion-Dollar Weather and Climate Disasters (2024), flooding caused by the overflow of river basins or heavy rain-induced urban flooding resulted in $9.2 billion in damages and economic losses. Meanwhile, inland flooding brought about by tropical cyclones caused a loss of nearly $200 billion from 1980 to 2023.
For businesses, in particular, these losses come in the form of damaged property, downtime or loss of output, and even temporary or permanent closure. Based on the projections of nonprofit First Street Foundation and global commercial engineering firm Arup, structure damage caused by floods resulted in $13.5 billion in 2022 and is only expected to rise to $16.9 billion in 2052. Meanwhile, Statista reports that business downtime in 2022 resulted in $23 billion indirect economic damage. The resulting lost output led to almost $27 billion economic damages in 2022 and is expected to increase to almost $30 billion in 2052.
If, however, a business wasn’t able to survive through these damages, it only takes at most a year for 25% of businesses that open to fail, according to FEMA. However, the sad reality is this: 90% of businesses that close for at least five days fail within a year. Worse, 40% of businesses shut down permanently after a natural disaster, such as a flood.
How Your Business Can Recover from Flood Damage
When a flood rampages in your city, you have primarily two ways to prepare and plan for it. First, you should prepare your continuity plan to help you deal with damaged property or asset and second, you should have a flood and other insurance to help minimize the cost of cleanup, repair, restoration, or rebuilding. With these two at the ready, you are on your way to a quick recovery from flood damage.
Business Continuity Plan
An unfortunate fact is how three-fourths (75%) of businesses don’t have a disaster plan, according to FEMA. Known as the disaster recovery plan (DRP), this written document acts like a manual that businesses can follow during a disaster so that they can survive. In essence, a recovery plan will help your business plan and prepare for the potential consequences of an unexpected event like a natural disaster. Its goal is to restore or continue business operations as soon as possible. It will also help your business minimize its losses and risk of damage to buildings, facility, and other assets.
Flood and Other Insurance
While commercial property insurance includes damage caused by wind or lightning, it doesn’t typically cover flooding. An exception might be if flooding results from melting snow from gutters or rain. In most cases, however, you’ll need to get commercial flood insurance to protect your business from flood damage. It provides coverage for your building and its contents against broken dams or levees, storm surge, water overflow, etc. It even provides for mold and mildew if these are the result of a flood.
A flood insurance isn’t required, but if it makes sense for your business to have one, for example, it is located in a high-risk or flood-prone area, then you should purchase a policy. Commercial flood insurance coverage is capped at $500,000 each for your building and its contents.
Another type of flood insurance is called Increased Cost of Compliance (ICC), which provides up to $30,000. You’re expected to use this money to bring your substantially damaged building to compliance. This covers for the cost for demolition, relocation, or floodproofing basements.
If you think you need more protection than those already mentioned, you can get excess insurance coverage too. You can use this insurance to rebuild properties whose value is above the limit of the National Flood Insurance Program (NFIP). What’s great about this insurance is it includes coverage for business interruption.
Who to Contact in Case of Flood Damage
If you find that your business building, facility, equipment, or other assets have incurred some damage due to flooding, reach out to your local emergency manager as soon as possible. Inform them of the damages as well as any immediate assistance you may require.
After that call, don’t put aside your phone yet. The next people you should contact are cleanup companies. Ask a reputable company if they can squeeze your business into their schedule as soon as they can. The sooner they can clean up and decontaminate your business premises, the sooner you can resume operations in that space. Make sure to document all the damages first before they arrive to do their job, however, because you’ll need those photos for your insurance claim.
Once you have your images, receipts and any other documentation or requirements in hand, it’s time to call your insurance company to file a claim. It is recommended that you first reach out to them immediately after the disaster to let them know what has happened, begin the claims process, and secure their help with the filing.
Other people you should also contact include your business advisors and local banks and credit unions. The latter two offer various business loans you can avail to recover or resume your operations, such as gap financing, short-term revolving loans, or emergency operating loans. Business advisors, on the other hand, include your account and attorney. They can inform you if your losses are eligible for tax deductions or if you can claim a federal casualty-loss deduction.
How to recover from flood damage
Remember that recovering from flood, or any other disaster for that matter, is a gradual process, so be patient. It takes time, but recovery starts by taking the first step.