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What’s up with the weather? Natural disasters — wildfires, floods, earthquakes, hurricanes, severe storms, and tornadoes are increasing in frequency and severity across North America and the world. It is now almost a daily occurrence on the news cycle that a weather-related disaster is being reported.
Canada’s Property & Casualty insurance market is undergoing rapid change after a series of high impact climate events — including the Jasper wildfires, Hurricane Debby, and multiple severe storms across the Prairies and Atlantic Canada. These events have pushed insured losses to record levels and accelerated shifts in underwriting, pricing, and risk appetite across the industry.
The impact of these catastrophic natural disasters on businesses goes far beyond physical damage as they interrupt revenue and operations, delay projects and supply chains, affect employees and customers, and often have long recovery timelines. These impacts can disrupt or even threaten entire business operations.
It is essential to the risk management of any business to understand how commercial insurance responds to these occurrences.
What does your standard Commercial Property Insurance typically cover?
Most businesses carry a commercial property policy or a Business Owner’s Policy (BOP). These policies generally include protection for several natural disaster–related perils:
- Fire and smoke damage, including from wildfires
- Windstorms and hail, including tornadoes
- Lightning and winter storm damage (including collapse from snow/ice weight)
- Certain types of internal water damage (burst pipes, sudden leaks — not floods)
It’s important to note that these property insurance coverages only protect buildings, equipment, inventory, and contents. However, policies may also be expanded to include business interruption coverage to recover lost income as a result of damage from an insured peril.
• STAEBLER KNOWS BUSINESS INSURANCE: For more about business insurance and what your organization should be considering, please visit: Business Insurance – Staebler Insurance
Natural Disasters are often NOT covered by Standard Policies
Catastrophic events are usually excluded from policies unless coverage is purchased separately and often at a premium depending upon the risk.
The most catastrophic events such as floods and earthquakes are standard exclusions from property insurance policies, unless purchased separately.
Flood coverage will usually cover: Overland flooding from rainfall, river overflow, storm surge, or surface water that is not included in standard commercial property insurance.
Earthquake damage is also excluded and must be added as an endorsement or a separate policy. The deductible on earthquake coverage is often calculated as a percentage of the building’s insured value, subject to a minimum value, and not necessarily as a flat amount.
Flood and earthquake damage are often catastrophic and can cause some of the largest business losses. Often the lack of coverage is only discovered after a claim is denied!
What coverages DO Businesses have?
Wildfires are typically covered in standard commercial property insurance. This includes coverage for building damage, contents, smoke damage, and business interruption (if added to the policy).
Hurricanes & Windstorms are usually covered however, flooding caused by hurricanes is NOT and will require separate flood insurance. Similar to wildfires, this can extend to business interruption if that coverage has been added to the policy.
Tornadoes are treated as windstorms and are generally covered. However, debris removal and business interruption provisions should be reviewed in order to ensure they are included at an adequate limit.
Severe Storms (hail, lightning, winter storms) are usually included in standard policies.
What coverages SHOULD Businesses have?
Business Interruption Insurance – This coverage reimburses lost income and operating expenses when a business must close due to a covered peril. It covers rent, additional expenses (e.g. temporary relocation), and ongoing regular expenses. Businesses should also consider important extensions to Business Interruption coverage, such as: Ordinary Payroll and Contingent Business Interruption. To learn more about Business Interruption Insurance, visit our website at: Business Interruption Insurance – Staebler Insurance
Flood Insurance – This is especially important for businesses operating in flood-prone areas; it covers rising water, storm surges, and flooding due to heavy rainfall.
Earthquake Insurance – this coverage protects against structural damage to buildings, contents, debris removal, and (if added) business interruption due to an earthquake.
Important reminders and common coverage pitfalls
Water Damage or Flood Confusion
Water damage is usually covered if it is “sudden and unexpected” and not resulting from rising water levels or overflow of a body of water. For example, a burst pipe or leakage from a fire suppression system may be covered but rising water coming in from outside caused by a flood is not covered without the proper flood insurance in place. Understanding this distinction is important as it can lead to many denied claims.
Aren’t “All Natural Disasters” Covered?
No – standard policies cover some perils but exclude some of the most catastrophic ones as outlined above. It’s important for any business to review their coverage and understand what their policy is protecting against.
Risks are all different
High-Risk areas may have special conditions impacting coverage and premium – Wildfire zones, coastal hurricane regions, and seismic areas may have higher deductibles or restricted coverage.
How to ensure Your Business is covered in the event of a natural disaster?
In order to stay resilient and have a robust disaster insurance strategy — coverage must include not just the standard commercial property insurance but also include business interruption coverage and flood and earthquake endorsements (where relevant)
• It is advised that businesses review their commercial property policies annually
• Make sure that there is sufficient coverage for floods and earthquakes and any other natural disasters exposures to the business
• Update building maintenance and fire prevention measures annually
• Document natural disaster management strategies and all risk mitigation efforts
• Review Business Interruption limits on a yearly basis to ensure that coverage is adequate for longer recovery timelines.
o Don’t forget to also consider the indemnity period! Most business interruption coverages have a default 12-month indemnity period, which may not be adequate for some businesses. To learn more about Business Interruption Insurance, visit our website at: Business Interruption Insurance – Staebler Insurance
• Make sure your Broker is aware and involved in your risk management strategic plan!
An up-to-date and modern insurance strategy is no longer optional – IT IS ESSENTIAL!
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