For small businesses in the US, flooding has become an increasingly serious concern, with climate change driving more frequent and severe flood events. Urban expansion into flood-prone areas, aging infrastructure and shifting weather patterns have all contributed to mounting flood risks.
Many small business owners remain underprepared for flood risks, often underestimating their vulnerability or assuming their commercial property insurance includes flood coverage — it typically does not. Without proper flood insurance, businesses face significant financial exposure in the event of a disaster. A proactive approach, including risk assessment, preparedness and adequate insurance, is essential for business continuity. Yet, many businesses remain uninsured or underinsured, leaving their operations and assets at risk. Securing the right coverage ensures financial stability and resilience after a flood event.
Flood risks for small businesses: Why insurance matters
Flooding poses a significant threat to small businesses, impacting operations, finances and long-term stability. Without proper flood insurance, recovery can be even more challenging.
Flood risks for small businesses
- Property damage: Floodwaters can damage buildings, inventory and equipment, with critical utilities like HVAC and electrical systems at high risk.
- Business interruption: Flooding can force businesses to shut down for extended periods, leading to relocation costs, higher rent, setup fees and payroll retention challenges.
- Supply chain disruptions: Damaged roads, railways and airports can delay critical materials, increasing costs and service disruptions.
- Rising insurance costs: Businesses in high-risk flood areas face higher premiums, stricter terms or coverage challenges as insurers withdraw, limiting options and driving up costs.
- Bodily injury and workplace hazards: Floodwaters often contain contaminants and pollutants that pose serious health risks to employees and customers.
- Compliance challenges: Businesses may be subject to fines or legal action if flood damage leads to environmental hazards, such as chemical spills or contamination.
Without flood Insurance, businesses face:
- Costly repairs: Out-of-pocket expenses for rebuilding and replacing damaged property.
- Inventory losses: Destroyed stock can halt operations and impact revenue.
- Prolonged closures: Many businesses struggle to recover without financial support.
Common mistakes small business owners should avoid
1. Underestimating the true risk
Relying solely on existing flood maps can lead to a false sense of security. Flood risks evolve due to climate change, urban development and shifting weather patterns. A single disaster can be catastrophic — according to the US Chamber of Commerce, one in four small businesses say they are just one disaster away from closing permanently.1 This has far-reaching economic consequences, as small businesses employ nearly half of US workers and contribute 43.5% of the nation's GDP. 2
Many small businesses mistakenly believe they are safe if they are not in a Special Flood Hazard Area (SFHA.) However, from 2013 to 2023, one-third of NFIP flood insurance claims came from areas located outside of current SFHAs. 3 This means a significant portion of businesses face unexpected financial losses due to flooding, even though they're located in moderate flood hazard areas [Zones B or X (shaded)] or areas of minimal flood hazard which are higher than the 0.2% annual chance flood elevation [Zones C or X (unshaded.)]
2. Failing to recognize the financial impact of being uninsured
Without flood insurance, small businesses may struggle to secure loans or financial assistance after a disaster. Lenders often require insurance as a condition for recovery funding, leaving uninsured businesses with limited options to rebuild.
"Many small businesses operate with tight cash flow, making flood insurance seem like an unnecessary expense. However, the cost of recovering from flood damage far exceeds the price of coverage. Despite this, only a small fraction of small businesses, approximately 120,000, carry flood insurance through FEMA's NFIP (National Flood Insurance Program), leaving millions unprotected." - David Landau — CPCU Client Service Supervisor
3. Unrealistic expectations about federal aid
Some business owners assume that Federal Emergency Management Agency (FEMA) recovery grants will be enough to cover flood-related losses. However, they can take up to two years to process, leaving businesses in financial limbo. Many businesses may have already shut down by the time aid arrives due to cash flow shortages.
Closing the coverage gap: Protecting small businesses from flood risk
Understanding the different types of coverage available is crucial for mitigating financial losses and ensuring business continuity.
Standard commercial property insurance policies:
Typically cover:
- Fire, theft and vandalism
- Windstorms and hail (depending on the policy and location)
- Water damage from internal incidents (e.g., burst pipes)
DO NOT cover:
- Flooding from rising water, storm surges or flash floods
- Mudslides caused by excessive rain
- Sewer backups (unless added as an endorsement)
This is where flood insurance comes into play.
Flood insurance options for small business owners
There are two primary ways for small businesses to secure flood coverage:
National Flood Insurance Program (NFIP)
- Managed by FEMA, the NFIP offers policies for businesses in participating communities.
- Covers up to $500,000 for buildings and up to $500,000 for contents.
- Limitations: Does not cover business interruption losses or damage beyond policy limits.
Private flood insurance
- Offered by private insurers, often with higher limits and additional coverage options.
- May include business interruption insurance, covering lost revenue and extra expenses during recovery.
- More flexible than NFIP policies and can be customized based on business needs.
Business interruption insurance: Does it help?
- Standard business interruption insurance covers lost income and operating expenses if a business is forced to shut down due to a covered peril (e.g., fire, windstorm).
- It does not cover flood-related shutdowns unless the business also carries a flood policy.
Why the coverage gap exists and how to close it
Many assume they don't need flood insurance if they aren't in a SFHA or their lender doesn't require it, but as seen with Hurricane Harvey and other disasters, floods are striking unexpected areas more frequently.
How small businesses can protect themselves:
- Assess flood risk beyond FEMA maps: Consider local drainage, recent weather trends and historical flood data.
- Purchase flood insurance: Whether NFIP or private, coverage ensures financial protection against catastrophic losses.
- Review business interruption insurance: Confirm whether flood-related closures are covered or if additional riders are needed.
- Consider excess flood coverage: An excess policy provides additional protection for businesses with valuable assets or high-risk locations.
Preparing for a flood: What small business owners need to know
Understand your business's risk
- Check FEMA flood maps to assess your flood zone.
- Consult local officials about historical flood data and mitigation strategies.
- Evaluate past weather patterns and potential future risks.
- Assess how flooding could impact supply chains, utilities and business operations.
Mitigation measures
- Improve drainage around your building and waterproof basements.
- Keep gutters and downspouts clear; install check valves in plumbing.
- Reinforce entry points — doors, windows and vents — with weatherproof seals.
Mitigate flood damage
- Install professionally designed flood barrier systems at entry points or surrounding key areas of the property.
- Elevate key equipment, electrical systems and inventory above flood levels.
- Use flood-resistant materials (tile, water-resistant drywall, sealed concrete).
- Install sump pumps with battery backups for sub-grade areas.
Develop an emergency response plan
- Identify evacuation routes and establish emergency contacts for employees.
- Create a business continuity plan to maintain operations or recover quickly.
- Train staff on emergency procedures and communication plans.
- Back up important business data offsite or in the cloud.
Financial and insurance readiness
- Secure essential business documents (insurance, licenses, payroll records) in waterproof containers.
- Review insurance policies and consider flood insurance for business property. Standard commercial insurance often excludes floods, but coverage may exist through the NFIP or another provider. Understand your deductibles, limits and exclusions.
- Maintain an updated inventory of assets and equipment for claims.
- Explore disaster recovery loans and financial assistance options in advance.
Claims process for small businesses after flood damage
Notify your insurer: Report the damage immediately, providing key details such as the date, time and extent of the damage.
Document the damage: Take photos and videos of affected property, inventory and equipment. List damaged items with details like condition, replacement costs and purchase records. Also document the mitigation measures and costs of efforts to prevent flood damage during the event.
Meet the adjuster: After filing a claim, an insurance adjuster will assess the damage, review financial records and determine the reimbursement amount.
Review the settlement offer: Once the adjuster evaluates the claim, they will issue a settlement offer. If the offer seems insufficient, negotiation or legal assistance may be necessary.
Repair and rebuild: Once a settlement is agreed upon, start repairs with a licensed contractor. Keep records of invoices and contracts, as they may be needed for reimbursement. Use reputable, licensed contractors with who a relationship was established prior to the flood event. Beware of scams!
Submit final documentation: Provide receipts and invoices for repairs and replacements. The insurer will issue payment based on coverage terms.
Follow up and appeal if needed: If the settlement is unsatisfactory, you may appeal with additional evidence or legal assistance.
The need for insurance advisors
Flood insurance can be complex, and small businesses may struggle to determine the right coverage for their needs. Insurance advisors play a critical role in guiding businesses through policy options, helping them secure adequate protection against flood-related risks. Their expertise ensures businesses avoid costly gaps in coverage and remain financially resilient in the face of floods.
How insurance advisors help small businesses:
- Evaluate flood risk by analyzing location, environmental factors and flood zone classifications to recommend the right coverage levels.
- Recommend the right coverage to help business owners understand the difference between flood insurance and general water damage policies, ensuring they choose the best commercial flood insurance options.
- Ensure adequate coverage limits by assessing a company's assets and financial exposure to determine the necessary coverage limits, preventing underinsurance.
- Clarify policy exclusions by highlighting what is and isn't covered, helping businesses mitigate uncovered risks through supplemental policies.
- Guide businesses through the claims process to ensure proper documentation and advocating for fair settlements.
- Implement regular policy updates and annual reviews to ensure coverage remains up to date and aligns with new risks.
- Explain government assistance programs to help businesses understand government-backed flood insurance programs, such as NFIP, and identify low-cost options for businesses in lower-risk zones.
Shielding your business with Gallagher
Gallagher provides small businesses with access to various flood insurance solutions, ensuring they are well-protected against evolving flood risks. By leveraging both NFIP and private market options, Gallagher advisors tailor coverage to meet the unique needs of each business — whether that means securing higher limits or addressing specific risk factors.
Gallagher also conducts regular policy reviews to ensure businesses remain adequately protected as their operations grow and flood risks change. This proactive approach helps small businesses mitigate financial exposure, maintain business continuity and navigate an increasingly unpredictable climate landscape. Advice and templates are available to help small businesses prepare for and mitigate against natural catastrophes such as flood events.
Contact a Gallagher Small Business Insurance advisor today to prepare your business against flood damage.
Learn more about protecting your business with flood insurance.
Sources
1 "Inflation Concerns Remain Stubbornly High," U.S. Chamber of Commerce, accessed 18 Mar 2025.
2 "Frequently Asked Questions About Small Business, 2024," Office of Advocacy, 23 Jul 2024.
3 "Flood Risks Increase After Fires," FEMA, 21 Jan 2025.