Hurricane season is in full swing. As heavy rains and powerful winds tear through the Southeast, flooding has quickly become a major concern for multifamily owners and operators.
Flooding is the most common and costly type of natural hazard in the nation. According to the Department of Homeland Security, 90 percent of natural disasters within the United States involve flooding. Additionally, flood risk is intensifying as the number and severity of storms increase.
The National Oceanic and Atmospheric Administration (NOAA) predicted an 85 percent chance of a more destructive than average hurricane season in 2024. The season began with Hurricane Beryl, the first Category 4 storm ever recorded in June. In July, Beryl progressed to become the earliest Category 5 hurricane on record in the Atlantic.
In September, Florida and much of the Southeast, including more inland areas of North Carolina and Tennessee, were impacted by Hurricane Helene. “Helene’s largest impacts were across the southern Appalachians where widespread severe and unprecedented flooding occurred with hundreds of fatalities and billions in property damage,” explains the National Weather Service.
Most recently, Florida’s west coast was hit yet again by a major storm with Hurricane Milton in October. Hurricane Milton produced strong tornadoes across South Florida – an unusual trend for hurricanes.
“Based on wind speed, Milton became the strongest hurricane in the Gulf of Mexico since Hurricane Rita in 2005. Based on pressure, Milton was the fifth most intense hurricane in the Atlantic basin on record. Milton is also the second Category 5 hurricane this season,” according to NOAA.
Increasingly destructive weather patterns have made it essential for multifamily building owners to understand and mitigate the risks associated with these events.
The Basics of Flood Insurance
Standard property insurance does not cover flood damage. So, property owners and operators who are seeking protection from flood risk will likely have to seek out a separate insurance policy.
Additionally, many lenders will require flood insurance for properties located in a Special Flood Hazard Area, often referred to as a “flood zone,” when a mortgage or other federally backed loan is involved. Multifamily developments are no exception to the rule.
In truth, however, all properties are located in a flood zone — though the degree of risk will vary.
Flood zones are used to differentiate the level of risk inherent for a property. According to the Federal Emergency Management Agency (FEMA), flood zones represent the probability of a flood occurring in a certain geographic area, as well as the potential impact a flood could have on the area. Flood zones help determine factors such as insurance requirements and costs.
Many property owners will opt out of purchasing flood insurance when it is not a requirement. This may not be the wisest decision in an environment where both storms and flood claims are increasing, and just two inches of water can cause severe property damage.
“Flooding is the most common, and most expensive, natural disaster in the United States,” states FEMA. “Just 1 inch of water pooled in a single-story, 1,000 square-foot home can cause close to $11,000 worth of damage; 1 foot of water in a 2,500 square-foot single-story home can cause more than $29,000 in damage.”
Most flood insurance is available through the National Flood Insurance Program (NFIP), which is administered by FEMA. The NFIP offers two types of coverage: building coverage and contents coverage. Building coverage protects the building itself, as well as permanently attached elements such as water heaters and installed carpeting. Contents coverage protects personal belongings such as clothing, furniture and electronics.
Change Your Mindset, Be Proactive
Many property owners believe that if their property is not located in a high-risk flood zone, then they do not need flood insurance. However, according to data from FEMA, roughly 25 percent of all flood claims come from moderate to low-risk areas. This indicates that properties do not have to be in a high-risk zone to be impacted. This is especially true in coastal states like Florida.
In fact, while FEMA classifies 8.7 million properties as having substantial risk of flooding, a model developed by First Street Foundation — a nonprofit research and technology company that tracks flood risk and its potential financial impact across the nation — identifies 14.6 million properties with the same level of risk. That’s nearly 70 percent more than what FEMA identified.
According to First Street Foundation, this means that nearly 6 million households and property owners may have underestimated or be unaware of their current level of risk.
Building owners must be proactive to ensure their communities are protected from flood risk.
There is a 30-day waiting period until flood coverage kicks in for property owners who purchase insurance through FEMA. Once a storm approaches, it’s often too late to buy insurance to protect properties from rising water triggered by that weather event. In other words, multifamily owners often must acquire flood insurance well ahead of hurricane season.
Property owners seeking insurance for their communities should work with an insurance agent who has experience with flood insurance and multifamily assets. The right insurance agent will assess unique exposures and work with the property owner to create a comprehensive insurance plan to protect the owner’s investment.
The time to make certain a property is protected from flooding is before an event occurs. Owners who fail to identify and respond to this risk can incur significant financial losses.
Build a Trustworthy Team
While insurance can protect a property and its contents, it cannot prevent floods from occurring. It is essential for building owners to have a post-storm plan in place for if a disaster should occur, and that plan should include a go-to team of advisors on standby to ensure seamless restoration. The team should include engineers, and remediation companies that are readily available post-storm to help assess damage and move forward with recovery.
Maintaining a team of trustworthy companies and individuals like this is critical to quickly jump-start recovery efforts. After a storm, repair professionals are typically in high demand, which can make it difficult for property owners to find someone to begin work.
Without that trusted team of professionals, a property owner or operator may be forced to turn to less experienced general contractors and remediation professionals who are unfamiliar with the community and who may not get the job done correctly. In disaster recovery situations, some repair professionals may also overcharge for their services.
Maintaining a trusted team that is familiar with the property and understands the specific needs of their client can help maximize recovery efforts post-catastrophe.
Flood risk is intensifying for properties in and out of flood zones. To mitigate these exposures and protect their investments, property owners must act wisely and proactively. Securing insurance coverage well in advance and maintaining a trusted team of professionals can ensure a rapid and seamless recovery from even the worst disaster scenario.
Michelle Newton is a commercial lines producer with Insurance Office of America, an insurance agency based in Longwood, Florida. She joined the company in in February 2019 and specializes in working with condominium associations. Newton holds a property and casualty general lines license and a surplus lines license.