Property & Casualty Insight

Staying Above Water: Strategies to Mitigate High

Cost of Flooding
Across many parts of the
country, unrestrained
property development
in flood-prone areas is
accelerating faster than
flood mitigation efforts.
The result is more people
and properties each year
experience the costly toll of
flooding.
According to the Insurance Information
Institute, flooding is the most common
and costly natural disaster in the United
States, causing an average of $50 billion
in economic losses each year.
The heavy rains which inundated Texas,
Oklahoma, and other Southern Plains
states during the first half of 2015, and
the recent deadly flash floods in Utah,
triggered by thunderstorms, are stark
examples of recent flood devastation
Habitational properties are frequently
the most noticeable victims of flood.
For owners and managers of real estate
properties, flooding can result in
significant out-of-pocket costs since
standard commercial property insurance
policies are not usually structured to

cover damages from flood.

Meanwhile, those who purchase
flood insurance through the National
Flood Insurance Program and from
private excess carriers frequently face
underinsured exposures because they
fail to properly review and structure the
policies and coverage terms to match
their unique circumstances.
Following are four flood-related
challenges that businesses face and the
solutions USI has developed, leveraging
our USI ONE process, to help clients
reduce the financial impact of flooding.
Changes to Flood Zones
during Policy Year
Changes to flood zones during the
course of a policy year can create
underinsured exposure for business.
The financial impact of such changes
typically surfaces in two areas:
Reduced flood coverage due to
inadequate limit
Increased deductible for High
Hazard Flood areas
Staying on top of flood zone changes
requires a diligent and experienced
risk consultant with proven safeguards.

For example, USI has developed a

comprehensive process which includes:
Identifying the flood zone per
location
Providing definitive location
identification by liaising with
property carrier and reviewing the
property policy
Negotiating policy language so that
if flood zone changes, coverage will
not change
Reviewing client exposure and
appropriate limit frequently
This process proved instrumental for
several USI real estate clients when
floods swept across a number of
Southern states in the first half of the
year. In one specific case, a new client
in Central Texas suffered damage
to buildings that were assumed to
be outside of the most hazardous
flood zones. This client, not aware
that flood maps had been adjusted
during the policy year, realized several
of its properties were deemed to be
in hazardous zones. Meanwhile, the
companys previous property coverage
included only $1 million of Hazardous
Flood Zone coverage.

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Risk Management | Property & Casualty | Employee Benefits | Personal Risk Services | Retirement Consulting
2015 USI Insurance Services. All rights reserved.

Continued from page 1

After reviewing the updated flood zone
data with the client, USI recommended
higher limits for the property locations
based on the exposure. The updated
coverage placed by USI addressed a
$2.5 million potential coverage gap.
In addition, USI modified the policy
language to eliminate the carriers
ability to reduce coverage if flood zones
changed during the policy year.
Reduced Coverage Due to
Broad Definition of Flood
A broad definition of flood sometimes
allows certain non-flood events to be
classified as flood, potentially reducing
coverage and increasing the applicable
deductible for insureds.
For example. An off-the-shelf policy
may contain some or all of the following
broad definitions of flood:
Surface water, underground water,
waves, tides, tidal waves, tsunamis,
overflow of any body of water, or
their spray, all whether driven by
wind or not
Mudslide or mudflow
Release of water impounded by a
dam
Water or sewage which backs up
through sewers, drains or sumps
All, whether naturally occurring or
due to man- made or other artificial
causes
The broad definitions mean many types
of water damage situations qualify as
flood.
For its clients, USI insists on this
narrow flood definition: The rising and
overflowing of a body of water onto
normally dry land. This straightforward
language can have a significant financial
impact for clients.

A recent example of this is when USI

reviewed a clients property policy
which contained a very broad definition
of flood to include the back up of
sewers and drains. USI negotiated the
narrowing of the flood definition so
that only defined flood events would
incur a higher deductible and lower
limit. Subsequently, when the client
suffered losses from a non-flood-related
sewer backup, the policy language
improvement reduced the applicable
deductible from $250,000 to $10,000,
saving the company $240,000 in
underinsured loss.

for a new client and determined that its

exposure was approximately $5 million
for a 1-in-250 year event. Working
closely with the client, it was agreed
that purchasing $5 million in High
Hazard Flood coverage was a prudent
risk management strategy. The newly
acquired limit provided crucial coverage
when the company subsequently
sustained flood losses, but was able
to obtain protection for a previously
uncovered exposure of $2.5 million.

Language Excluding Interior

Water Damage
Certain policies exclude losses from
interior water damage following severe
storms or heavy rains. This wind driven
rain coverage exclusion typically occurs
when proof of exterior damage is lacking.
Drawing on decades of experience with
such incidents, USI has developed a
process that involves reviewing property
policies to remove this exclusionary
language.
Properly Quantifying Flood
Risks and Setting Limits
Proper risk quantification and limit
adjustment for assets exposed to flood
events is an essential aspect of flood risk
mitigation.
At USI, risk consultants perform
actuarial analysis, using the AIR
Worldwide modeling platform, to
provide an estimate of the potential
cost of damage from flood. The process
allows for a better understanding of the
coverage and pricing needed.
The modeling software has been used to
help many clients. For example, in one
case, USI reviewed a property program

The flood solutions discussed here represents

a few of USIs offerings to real estate clients.
Its important to note there is no one-sizefits-all solution so understanding a clients
specific circumstances is crucial to identifying
the right mix of solutions needed. To learn
more about the solutions discussed here and
the USI ONE Advantage contact a USI
consultant.
To analyze our clients business
issues and challenges, our property
& casualty team leverages USI
ONE, a fundamentally different
approach to risk management.
USI ONE integrates proprietary
business analytics with a network of
local and national technical experts
in a team based consultative
planning process to evaluate the
clients risk profile and identify
targeted solutions. Clients then
receive tailored recommendations
for improving their total cost of risk.

Risk Management | Property & Casualty | Employee Benefits | Personal Risk Services | Retirement Consulting
2015 USI Insurance Services. All rights reserved.