Insure For Disaster: Protecting Your Investment Against Extreme Weather And Natural Disasters

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In 2019, the National Centers for Environmental Information recorded 14 weather and climate disaster events across the United States with losses exceeding $1 billion each, including three flooding events and eight severe storms.

While the 2019 California wildfires caused less damage than the two previous seasons, a total of 253,354 acres burned last year. That compares to 1.8 million acres that burned in California in 2018 and 1.3 million acres in 2017, according to AccuWeather.

The Insurance Journal estimates that insured losses from California wildfires were over $25 billion through October.

AccuWeather estimates the total damage and economic loss caused by wildfires cost California $400 billion in 2018 and $85 billion in 2017. AccuWeather’s estimate includes damage to homes and businesses as well as their contents, job and wage losses, and other economic impact.

AccuWeather also estimates the 18 named storms (such as Hurricane Dorian) in 2019 caused $22 billion in damage in the U.S. This follows the 2018 ($80 to 90 billion) and 2017 ($290 billion) storm seasons, which included Hurricanes Florence and Michael in 2018 and Hurricanes Harvey, Maria, and Irma in 2017.

It is the fourth straight year that there were at least two U.S.-landfall hurricanes (Barry and Dorian), and the longest streak since 1947 to 1950.

Insurance carriers took the brunt of the economic losses in recent years; as a result, they are raising deductibles and placing restrictions on policies in higher risk regions, making owners more vulnerable should disaster strike.

The losses from natural disasters and extreme weather events, such as flooding in areas that were not previously considered in floodplains, have forced many business owners to review their existing insurance policies to determine the extent of their coverage.

Now is the time for self-storage operators to find out where gaps may lie in their coverage and update insurance policies as well as put plans in place to protect their investments.

Got Flood Insurance?
In March 2019, a powerful storm with heavy precipitation that intensified snow melt and flooding caused $10.8 billion in damage in eight Midwest states—one of the costliest U.S. inland flooding events on record, according to the National Centers for Environmental Information.

In July, major flooding impacted 13 Southern Plains states, significantly affecting agriculture, roads, bridges, levees, dams, and other assets across many cities and towns. Persistent heavy rainfall caused $6.2 billion in damage.

Flood insurance is available through the National Flood Insurance Program, but many owners may be surprised to learn that private companies offer the insurance at competitive rates.

“The advantage of getting coverage through a private insurer is you can get business income put on the policy,” says Brian Bogdanoff, vice president and partner of Insurance Office of America in Longwood, Fla. “With the national flood program, you’re not going to be able to get a loss of income form included.”

Business income or business interruption coverage protects a business for loss of revenue incurred during the rebuilding process following a major loss such as natural disaster or fire. If multiple self-storage units are out of commission for several months during a rebuild, that loss of income could devastate a business.

“You don’t want to find out the hard way when you’ve got a claim for flood, what about the $500,000 loss of income if it’s going to take 10 months to rebuild?” Bogdanoff says.

He adds that a standard business owner policy may include a loss of income clause, however, it generally would not include income protection from floods.

Business income protection is always a good idea for owners to have in the event of a fire or other major claim that requires reconstruction of the facility. For example, MiniCo’s self-storage program offers business income coverage of the actual loss incurred up to 15 months with higher options available.

Insurance For Other Perils
In addition to natural disasters, human-caused catastrophes and other incidents can put businesses in jeopardy.

One claim that is increasingly appearing on self-storage operators’ radar is pollution. And yes, there is insurance for that peril.

“A pollution policy is something that is overlooked a lot of times. That’s typically not included in a business owner’s package,” Bogdanoff says. “A true pollution form for hazardous materials cleanup would be really important.”

If a storage tenant were to dispose of oil in a nearby lake or other body of water, the facility owner could receive a call from the EPA demanding cleanup costs. Typical limits for pollutant removal start at $25,000, with up to $400,000 available for larger facilities. Bogdanoff says owners may qualify for up to $5 million on some policies.

Another hazard that can cripple a business is when a storm or other hazard knocks out heating and cooling systems, electronic gates, computers, and other critical equipment. Equipment losses related to storms are normally covered under a business owner policy. Mechanical breakdown losses, however, can often be added to a BOP by endorsement, or a self-storage operation can purchase a stand-alone equipment breakdown policy.

“Equipment breakdown coverage is probably the most economical and efficient insurance to add, because you never know when equipment is going to go out,” says Ella Tayrien, vice president of claims for MiniCo. “It helps with things that are not covered under a standard policy. Normally equipment breakdown not related to a covered peril is excluded.”

MiniCo offers equipment breakdown protection for property damage, electronic circuitry impairment, business income, spoilage, utility interruption, computer equipment, and data and media. This policy covers mechanical breakdown for air conditioning systems used for climate-controlled facilities, wine storage, and rental offices.

MiniCo’s equipment breakdown coverage places no age limit on equipment, so older boiler systems and other machinery would be covered.

Another affordable way to protect a facility against large liability claims is through an umbrella policy. “It’s always good with today’s litigious environment to have an extra cushion of coverage for such a minimal cost in the event there is a large coverage claim,” Bogdanoff says.

Typically, umbrella coverage ranges from $1 million to $5 million, although it can go as high as $100 million.

Risk Management Measures
Usually the best way to protect a facility and its owners is to avoid a mishap ahead of time. It is critical to perform maintenance tasks that can help minimize property damage in the event of severe weather. These actions include trimming trees, ensuring that the roof is properly secured to the structure, and regularly inspecting the premises to identify and remove loose debris that could become a dangerous missile in high winds.

MiniCo advises self-storage owners in coastal areas to prepare for severe weather with an emergency preparedness plan, a basic requirement for all businesses regardless of location. Once the plan has been developed, it is important to provide ongoing training for your staff to familiarize them with the plan’s key elements and procedures, including shelter-in-place provisions and post-storm safety considerations.

Assemble a list of important contact information and keep it in a secure location away from the facility. Contacts should include carrier names, addresses, phone numbers, and policy numbers for each of your insurance policies as well as contact numbers for employees, local police, medical facilities, utilities, and other emergency contacts.

Contact your insurance agent to ensure that storm-related and disaster-related exposures are addressed by your policy. Review your building values, deductibles, and business interruption coverage.

Fire is another peril that can take a devastating toll on a storage operation. The aftermath of a fire can include costly repairs as well as lost income while spaces are unavailable to rent.

Operators can take measures to help prevent devastating fires. The rental lease should include specific wording prohibiting the storage of flammable materials. The manager should point out the prohibitions and communicate them directly to the tenant at the time of lease. In addition, managers need to be out on the premises with tenants and alert them if they see a hazardous situation such as someone smoking in a unit, using a space heater, or overloading a power strip.

Operators can post “no smoking” signs throughout the facility as well as signage reminding tenants that the use of candles or other open flame is prohibited.

Mail and email communication should include educational messages and safety tips such as a list of items that are prohibited from being stored (gasoline, paint thinner, and propane) and reminders to drain fuel from lawn mowers, chain saws, gas generators, lanterns, and heaters before storage.

Schedule a policy review with your insurance agent to discuss limits for property and liability coverages and include business interruption and umbrella policies to ensure that exposures from fire and natural disasters have been properly addressed.

Staying vigilant to prevent fire and other costly incidents is an important risk management strategy to help protect your valuable investment through stormy weather.

David Lucas is a freelance writer based in Phoenix, Arizona. He is a regular contributor to all of MiniCo’s publications.

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