Better World

Multifamily Flood Insurance – What We Learned From Harvey

Manage your own destiny. Now is the perfect time to assess.

When you manage apartment properties through a storm of biblical proportions such as a 1000-year flood like Hurricane Harvey, you learn a thing or two along the way. As we approach one year post-Harvey, we encourage our multifamily investors and those considering investing in apartments to take stock of the lessons learned here and proactively prepare now for what the future may bring.

The weather patterns around the globe wax and wane as we’ve watched torrential floods from coastal areas to the heartlands and across the pond in the UK. According to NOAA, the Oceanic and Atmospheric Administration, a division of the U.S. Department of Commerce, the El Niño and La Niña are opposite phases of what is known as the El Niño-Southern Oscillation (ENSO) cycle. The ENSO cycle is a scientific term that describes the fluctuations in temperature between the ocean and atmosphere in the east-central Equatorial Pacific (approximately between the International Date Line and 120 degrees West).

La Niña is sometimes referred to as the cold phase of ENSO and El Niño as the warm phase of ENSO. These deviations from normal surface temperatures can have large-scale impacts not only on ocean processes, but also on national and global weather and climate.1

According to the World Meteorological Organization, the estimated probabilities for the second half of the year for 2018 indicate 75-80% ENSO neutral conditions with 20-25% probability of La Niña continuance with 0% probability of El Nino emergence. Most climate models indicate that a transition from La Niña to ENSO-neutral conditions is likely early in the second quarter of 2018, while a continuation of La Niña conditions through the second quarter is less likely.

Although a possibility for warming conditions is suggested by some models for the second half of 2018, such long-lead forecasts of the ENSO conditions are uncertain because forecasts going through the March-June period are known to have lower confidence than those made at other times of the year. National Meteorological and Hydrological Services will continue to closely monitor changes in the state of ENSO over the coming months.2

With that said, trying to predict Mother Nature isn’t encouraged. The wise Sage of Omaha, Warren Buffett once said, “Predicting rain doesn’t count. Building arks does.”

Rising Water

Traditional property insurance will cover wind, fire, hail, and other natural and man-made disasters depending on the coverage purchased. What is often overlooked and more often assumed is that rising water is covered in these traditional insurance policies. This can be a very costly assumption.
Flood insurance is a separate policy that covers that dreaded term “rising water”. There are two ways to acquire rising water/flood insurance: private insurance such as that offered by Lloyd’s of London and flood insurance offered through the National Flood Insurance Program (NFIP) underwritten by the United States Government and FEMA. Interestingly, according to an article in the Houston Chronicle, Lloyd’s is interested in potentially underwriting the NFIP policies if and when rates can justify risk. Lloyd’s executives said they would like to see a greater partnership between insurance companies and the federal program. 3

Through the NFIP, The amount you pay for your policy is calculated based on factors such as:

  • Year of building construction
  • Building occupancy
  • Number of floors
  • Location of its contents
  • Flood risk (e.g., its flood zone)
  • Location of the lowest floor in relation to the Base Flood Elevation on the flood map
  • Deductible and amount of building and contents coverage4

The National Floor Insurance Program can be a more simplified process than private insurance and allows up to $550,000.00 maximum coverage per building depending on several factors.

Public Insurance Adjuster – Your New Best Friend

When damage occurs in an apartment property, the policyholder notifies the insurance provider of the loss. With commercial insurance coverage, the provider often contracts with a third party to manage the claim and they work with licensed insurance adjusters. We have had a licensed public adjuster as part of our team for decades. These individuals provide detailed damage assessments and help make sure you are reimbursed for all that is covered within your policy. The process can quickly become complicated with some reports for larger property claim mounting up to over 1000 pages. Claims adjusters hired by insurance companies can be incentivized to pay the least amount possible per your policy and it is their every right to do so. An independent public adjuster is hired to do a thorough job while looking out for your best interest.

Public adjusters use the same software and processes as insurance company claims adjusters and can often move the process along in a more expedient manner so checks can be cut and repair work can quickly get underway. These skilled professionals take thousands of photos and can provide raw data to insurance companies and their adjusters and can cut down on processing time. We have witnessed over several decades of apartment property management that fees assessed by experienced and fair public adjusters are well earned and easily justified especially when it comes to a substantial property claim. As a property owner, you can sit back and relax and breath a little easier when you have a commercial property insurance policy, a flood insurance policy, a licensed, professional property management company and a licensed public adjuster on your team. If you don’t, now is the time to assess these needs.

During the 2017 H.I.M. trifecta (Harvey, Irma and Maria hurricanes), there were not enough adjusters to go around. At Better World Properties LLC, we were able to move forward quickly due to our established relationship with our designated public insurance adjuster.

There are three stages in the process of a rising water flood in an apartment community.

  1. Clean up phase – mitigation, removal of damage and wet items and building materials
  2. Dry out phase – drying the building, opening the walls, using mold inhibitors
  3. Build back phase – reconstruction

A qualified property management company and a public insurance adjuster can help get through these phases more quickly and with better financial outcomes due to a well managed and time-tested process.

Dry Out – A Potentially Costly Phase

There are many national disaster restoration companies selling services with expensive dehumidification equipment that dry out buildings artificially. Sometimes this is absolutely necessary such as in a high-rise property where windows don’t open and ventilation is difficult to achieve. In most suburban apartment complexes, this is not the case. We find promptly removing water damaged materials, opening up the walls, letting nature take it’s course and using proper professional mold inhibitors goes a long way and can save a lot of money.

All is Quiet Before the Storm

FACT: More than 20 percent of flood claims come from properties outside high-risk flood zones, according to the National Flood Insurance Program (NFIP).
New insurance policies cannot be written when there is a named active storm. Take this time, while all is quiet to assess your apartment properties so that the next time Mother Nature decides to show her strength, you and your properties are well positioned.

Is it time to assess or reassess disaster preparedness for your apartment portfolio? Do you have a plan in place? Decisions now can save a ton of money down the road.

Give us a call. We’re happy to come visit your properties or advise on deals in the pipeline. Better yet, come visit. We love to talk apartments.

(713) 559-6975

[hubspot type=form portal=8919002 id=eca210a5-a669-4ed5-bb5c-fe78a758631f]