Hurricanes can cause devastating flood damage, even in Western North Carolina counties. Following hurricanes Frances and Ivan in September 2004, the North Toe River flooded Avery County's Department Complex in downtown Newland. (File photo by Jason King)

Is your property coverage ready for hurricane season?

Now is the time to review and make sure your property coverage is in order

By Michael Kelly
Risk Management Director

This is the time of year that most county emergency management staff have dusted off their emergency management manual and given some thought to protocols and procedures to be employed in the event of a hurricane. Some might even participate in mock hurricane storm response drills and work to fine-tune responsibility assignments and procedures. This month's column is not about emergency procedures, but instead about making sure your property coverage is in order and ready to respond should the unfortunate occur and a storm strike North Carolina.

Probably one of the most startling facts you may encounter is an insurance carrier's unwillingness or even lack of capability to add any new, previously uninsured property once a named storm gets within 48 or even 72 hours of striking the southern or eastern coastline. Therefore you cannot wait to add something for property coverage when a storm is eminent.

This underwriting practice is common and makes sense – else insurance carriers would not be able to avoid what is called "adverse selection," i.e. waiting until a storm is certain and only then buying insurance. The rating structure that drives defining how to charge for property coverage would not statistically work properly if companies and organizations had the ability to wait and purchase coverage only when it is a certainty that it is needed.

Now is the time to pull out your property policy, look at the schedule of locations and double check to make sure that the new social services or economic development incubator building was in fact added to your policy as requested and the appropriate endorsement was received.

Next, any buildings that are in the course of construction need to be verified that the contractor doing the construction provides builders risk coverage, or you have a separate policy/endorsement on your end. As builders risk coverage is traditionally written on an inland marine coverage form, it might include some limited flood coverage as well. Under normal circumstances the valuation clause for inland marine policy forms affords actual cash value, i.e. the payment for loss is discounted for age and condition of property. Since this is new construction, this should not be an issue.

Although some property forms may provide a small amount of excess flood coverage, direct and primary flood coverage for commercial buildings should be purchased through the National Flood Insurance Program. It carries a maximum limit per location of $500,000 for building and $500,000 for personal property and offers different levels of deductibles beginning with $500 per occurrence. In addition, normally there is a requirement for a 30-day waiting period unless being purchased to facilitate a closing with a mortgage company on a pre-certified date. So for properties that are known to be in the 100-year floodplain (Zones A or V), in order to be 100 percent safe the time to decide about flood coverage is at least a month before hurricane season begins. It is possible to get an idea of your properties' level of flood risk by reviewing www.floodsmart.gov/floodsmart/ and then supplying the property's physical address in the section labeled "How can I get covered?"

Now is also the time to check your property coverage and determine if you have an additional named-storm per occurrence or per location deductible. This additional 2 percent to 5 percent deductible is common practice in the standard insurance carrier market. Further, although there is nothing you can do to change it during this policy year, it is important to confirm coverage deductibles are correctly written and an appropriate self-insured retention/deductible fund is set aside in advance.

For those of you insured through the NCACC Liability & Property Pool, unless specifically requested as an option to cut costs, you do not have an additional named-storm percentage deductible.

Also, don't forget about your fleet of county vehicles – think about where they will be parked during a hurricane, and consider the elevation and the likelihood of multiple vehicles being damaged from them all being located in a single location. In most cases it is better to have a larger spread of risk through the utilization of multiple storage locations. As such, and given a storm is likely, perhaps you as the risk manager should consider having a plan to let different county employees be responsible for driving assigned vehicles to a given, favorable location.

Lastly, although local governments do not traditionally have a very large business interruption/rental reimbursement exposure, it bears some thought. Business interruption is designed to pay for the loss of income stream arising out of the damage to your property. Rental reimbursement is intended to pay for the loss of rental income should the property leased from you become damaged to the point it is untenable and the lease allows abatement or cessation of the rent. Both of these coverages are sold with specific sublimits that should reflect the level of your actual exposure to loss.

This hurricane season is expected to generate between three to six "major" hurricanes. For a current update from NOAA Climate Prediction Center, visit www.cpc.ncep.noaa.gov/products/outlooks/hurricane.shtml.

NCACC Risk Management Director Michael Kelly writes a regular column on risk management for CountyLines. With more than 32 years of risk management/insurance experience, he holds the Associate in Risk Management for Public Entities, Certified Risk Manager and Certified Insurance Counselor professional designations. He can be reached at michael.kelly@ncacc.org or (919) 719-1124. Archived versions of the column can be found online at www.ncacc.org/managingyourrisk.html.