A discussion on self-storage emergency preparedness for catastrophic loss would not be complete without focusing on insurance. One of the main reasons you purchase insurance is to reduce your losses when catastrophe strikes. Having adequate limits and proper coverage is part of the protection you will need. A good starting place is to understand what catastrophe exposures you face and what insurance is available to help you control losses from them. What protection you choose may be different than another facility owner. You can also choose to take actions that will reduce your exposures.
Up in Smoke
Nationwide droughts, lightning and other sources are generating large wild fires in areas not usually afflicted. Plus, areas often hit by wildfires are experiencing them in larger magnitude. Fires that consume brush and forest areas pose great catastrophic potential. They move through acres in a matter of hours, consuming everything in their path. The volatile nature of these fires creates an exposure that insurance carriers monitor carefully.
When evaluating clients’ properties, insurance companies inquire about the construction and age of structures and the fire-fighting capabilities near the location. While you can’t change the construction of your buildings or move the fire department closer, you can consider reducing the fire load of your buildings when maintaining and updating your buildings.
One of the easiest things you can do is clean any gutters and remove tree limbs and leaves from your premises. If you are situated in a densely covered brush or forested area, or even an area with dry grass, you’ll need to pay greater attention to removing the surrounding vegetation. Talk with your local fire department about how much vegetation to remove, particularly in the spring when growth begins.
Weather or Not
With much of the U.S. population living a short distance from a coast, exposure from wind and rain due to tropical storms and hurricanes are a major source of catastrophic loss. At this time, the insured losses from Hurricane Ike, a category II storm, are approaching $20 billion, making it the third costliest windstorm in U.S. history. Those who live and work in these areas are well aware of the risks and the requirements to protect their property when a storm approaches.
If your facility is located in an area prone to severe storm activity, your insurance company will limit its coverage and you must assume part or all of this exposure. Some policies exclude wind coverage, which means you may need to purchase a separate policy from another company to provide this protection. In areas where windstorm is a frequent cause of severe property loss, many insurance policies have a separate wind deductible that is higher than your property deductible for other causes of loss. This deductible can be written as a flat amount or a percentage of your property values.
From the insurer’s point of view, the higher deductible serves two purposes. First, it keeps the premiums somewhat lower. Second, it encourages you to take steps to lessen the amount of loss. Have your insurance agent explain how the deductible would apply when you are purchasing insurance.
The Flood Zone
A substantial number of buildings are constructed in flood areas and owners are not always aware of it. The fact that a flood hasn’t been recorded does not mean one hasn’t happened or won’t happen. Flood history is only one element used in determining flood risk. More critical determinations are made by evaluating your community’s rainfall and river flow data, topography, wind velocity, tidal surge, flood control measures and building development (existing and planned).
Floods can occur in any area, to varying degrees. If you live on a hill or in an area that has never been flooded, your risk may be significantly reduced, but it is not eliminated. Flooding can be caused by heavy rains, melting snow, inadequate drainage systems, failed protective devices such as levees and dams, as well as by tropical storms and hurricanes.
Most standard insurance policies exclude coverage for flood. If that is the case with your provider, you’ll need to purchase a separate policy for this protection. Most flood insurance is sold through the National Flood Insurance Program and will carry a high deductible. Make an informed decision about the flood risks you face before deciding whether to purchase coverage by talking it over thoroughly with your agent.
The Big One
If you live in earthquake country, then buying earthquake insurance may make financial and logical sense. You may need to purchase a separate policy for this coverage. Ask your agent and find out what options are available. And, as with other catastrophe insurance, you’ll probably have a higher deductible to meet. You can also reduce loss yourself by retrofitting your buildings with earthquake bracing.
Having adequate replacement cost coverage is always important but never more so than when a catastrophe occurs. If a disaster of great magnitude strikes, your ability to rebuild quickly can be impaired due to lack of materials and competent contractors available to perform the work. Both can create a larger loss of income than you may have expected.
Another important part of your loss of income coverage is the extended period of indemnity. This coverage allows additional time after the repairs are made to return to business as usual. In the case of self-storage, it allows the management time to recover, renting units to tenants and reaching typical occupancy levels. You don’t want to find out after you have a loss that you did not purchase limits high enough to replace your buildings and get your facility back into operation.
There are many tools available to help you determine the actual replacement cost of your facility. Start by talking to your insurance agent. Along with adequate property coverage, loss of income coverage is also vitally important. Review both the coverage amount and the time period for this coverage.
When thinking about catastrophe, remember to review your insurance coverage as well as take action to minimize your potential losses. No one wants to face disaster. Moreover, no self-storage facility wants to face catastrophe without ample insurance coverage.
Kay Schaefer, an underwriter for Deans & Homer, is a certified insurance counselor. Deans & Homer was established in 1856 and has specialized in the self-storage industry for more than 30 years, offering facility and tenant-insurance programs. For more information, call 866.753.2228; e-mail [email protected]; visit www.deansandhomer.com.