The last fifteen years have completely changed how your small business needs to think about insurance. Hurricanes, floods, and wildfires are reshaping the insurance industry by raising premiums and reducing coverage availability. In this overview, you’ll learn what you need to know about natural disaster insurance for businesses and how it will impact your small business growth.
How business insurance is today
It’s become a whole new world for business insurance, where insurance is no longer a minor cost of doing business but a real part of the decision-making process of where to locate your business and how to price your products and services.
Insurance premiums for small businesses have risen sharply, especially if you’re located in disaster-prone regions. For example, businesses in coastal states like Florida, California, and Texas have experienced increases of 20-50% over the last few years. During just a couple of months in 2024, commercial insurance premiums increased by 5.1% in New York.
These increases are a direct result of insurers trying to offset the growing financial risk of frequent and severe natural disasters.
At the same time, many insurers have started limiting their coverage or exiting markets entirely. This makes securing necessary coverage for your business increasingly difficult, especially in areas frequently impacted by extreme weather.
What natural disaster insurance for businesses is available?
Before navigating your insurance options, it’s important to be aware of what types of insurance there are for natural disasters:
- Property insurance covers damage or loss to your business property. This type of insurance is essentially a requirement for in-person businesses.
- Flood insurance is specific coverage for damage and losses caused by flooding. It’s typically excluded from standard property insurance policies, so if you’re in a flood zone, you’ll want to request it be added to your policy.
- Fire insurance covers any damage and loss caused by fire, including wildfires.
- Windstorm insurance covers damage and loss caused by severe wind events, such as hurricanes and tornadoes. When Hurricane Sandy hit New York City, many businesses didn’t have this policy, and as a result, many couldn’t recover from the flooding and property damage.
Similarly, there is “earthquake insurance,” which covers damages and losses caused by earthquakes. - Commercial auto insurance covers damages and losses to business-owned vehicles caused by natural disasters.
- Business interruption insurance covers the loss of income and the ability to pay expenses when a natural disaster disrupts business operations.
How insurance is changing small business
Rising insurance costs are pushing you to include risk management in your business plans, as well as prevent opening in areas with the highest risk of natural disasters.
You can secure better insurance rates by demonstrating preparedness, such as installing storm-resistant materials, upgrading fire prevention systems, and implementing comprehensive disaster response plans. These measures lower insurance premiums and significantly improve resilience against natural disasters.
As traditional insurance becomes more challenging to get, here are some alternative insurance solutions that could be worth exploring for your business:
- Parametric insurance: A policy that pays out automatically when certain measurable events occur, such as hurricane wind speeds or rainfall amounts. This offers more predictable and immediate financial relief.
- Captive insurance and self-insurance pools: You can try pooling resources to self-insure, gaining more control over insurance costs and coverage.
- State-backed insurance and mitigation programs: Many states offer programs to provide essential coverage when private insurers withdraw from the market. Some states have also created programs to target resiliency.
For example, New Jersey has grants of up to $50,000 and loans of up to $5 million to support businesses impacted by storms, and the New York governor’s office provides grants to support working capital for storm-affected businesses.
How to make your insurance effective
For disaster insurance to work in your favor, you must have good documentation. Good documentation includes proof that
- Your business earns as much as you say it does
- Your business spends as much as you say it does
- Your business has the assets you say it has
- Your business has sustained a real loss from the natural disaster
The time to get your documentation in order isn’t when a disaster comes, it starts from day one.
How to keep accurate documentation
- For your revenue and expenses, you’ll need to keep accurate books, and when making payments to key vendors, be sure to keep receipts and contracts on file. This will help to make a good case for a business interruption claim.
- For your business’s assets, you should keep all purchase contracts and construction agreements. This will help insurance companies accurately estimate how much loss you’ve sustained.
- For safe storage, you’ll want to keep your documentation offsite, either in a secure document storage facility or in a space owned by you or the business that isn’t prone to the same natural disaster risks.
Many Lower Manhattan businesses kept their business records in the basement, and when the area flooded, not only did they suffer losses, but they also lost the documentation to prove what they had in the first place.
How to approach natural disaster insurance for your business
While managing rising insurance costs is crucial, you must also maintain comprehensive long-term financial planning. Effective risk management and insurance solutions complement—but cannot replace—a well-developed financial strategy. Understanding the balance sheet, managing working capital, and creating long-term financial projections can’t be overlooked.
Navigating the evolving insurance landscape is challenging but manageable with the right approach. Rising premiums and limited coverage availability highlight the importance of proactive risk management, creative insurance solutions, and strategic long-term financial planning. By understanding these factors and adapting accordingly, your business can continue to thrive despite the unpredictable impacts of natural disasters.
Pursuit can help
With more than 15 business loans and a line of credit from $10,000 to $ 5.5 million, valuable resources, and business advisory services, Pursuit helps businesses in New York, New Jersey, Pennsylvania, Connecticut, Nevada, Illinois, and Washington get the financing and support you need to navigate the challenges of running a business.
Contact us to learn more about ways we can help.
