Business owners who are trying to get back on track after hurricanes Harvey and Irma now face a different sort of challenge: trying to recoup lost income from their insurers.
Exclusions in the fine print of policies, along with waiting periods and disagreements over how to measure a company’s lost income, make business interruption claims among the trickiest in an industry renowned for complexity.
“I think the whole thing is a rip-off,” said Thomas Arnold, an optometrist in Sugar Land, Texas. He said his business, Today’s Vision, was shuttered for almost five days after Hurricane Harvey struck because nearby flooding kept employees and patients from getting there.
Arnold says he pays $1,083 per month for coverage. But after he filed a claim, he said the U.S. unit of Zurich Insurance Group AG, rejected it because his business was not physically damaged.
Zurich does not comment about specific claims, the company said in a statement. It added that business interruption coverage generally requires “direct physical damage” to a property for a payout. It was Arnold’s second disappointing experience with business interruption coverage. He said another insurer denied his claim in 2008 after a nine-day power outage from Hurricane Ike.
Devastating storms are hitting the United States with increasing frequency. Risk modeling firm AIR Worldwide predicts losses to all properties from the flooding in Texas alone will be $65 billion to $75 billion, regardless of whether they are insured.
The income lost by shuttered firms makes up a significant chunk of overall losses from a natural disaster and can hobble the pace of a community’s economic and social recovery.
Hurricane Katrina in 2005, for example, caused about $25 billion in insured commercial losses, of which $6 billion to $9 billion has been attributed to business interruption, according to information posted on AIR’s website.
The National Flood Insurance Program (NFIP)does not offer a business interruption component. The program is largely used by homeowners, but it also covers commercial structures for up to $500,000 in damage, with another $500,000 for the contents.
That is why companies able to afford the additional protection of business interruption insurance, usually large and medium-sized firms, often purchase it despite the potential for unsuccessful and drawn-out claims.
Big Star Honda, a car dealership in Houston, lost 600 vehicles – 95 percent of its inventory – and was shut for five days after Harvey.
Its managers are now girding themselves for a potentially long slog with the firm’s insurance company as the dealership prepares to make a claim on its business interruption policy.
“We’re collecting every single invoice that pertains to the hurricane,” said Allen Paul, Houston regional vice president of Ken Garff Automotive Group, which owns the dealership.
“I‘m really curious to see how that goes,” he said.
The dealership also has a flood policy through the NFIP, but relatively few firms do. As of June 30, 2017, the NFIP had just 264,681 non-residential policies, said a spokeswoman for the Federal Emergency Management Agency, the agency that runs the government-backed flood insurance program.
That figure covers businesses but could also include churches, private schools and community centers, and is a sliver of the estimated 2.4 million small businesses located in flood-prone Florida alone.