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Recent midstate floods raise issue of business interruption

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When heavy rains pelted the East Coast for days in July, Jason Ernest and his colleagues watched the news with interest as parts of Hersheypark went under water.

As the president and CEO of trade group Insurance Agents & Brokers in Mechanicsburg, Ernest couldn’t help but speculate that the costs would be enormous for the park, as well as any other business that had to close because of flooding.

“We haven’t seen the hard statistics yet,” he said. “But there seems to have been more business interruption than previous storms.”

Many businesses make the mistake of buying insurance to cover immediate losses from a flood, such as ruined water heaters and basements, but failing to prepare for a loss in business activity. That lesson was learned the hard way during hurricanes last year, including storms that caused devastating losses in areas of Texas that normally aren’t threatened by flooding.

“When you see business interruption, that is where costs really start to add up,” he said.

The park closed for three days, July 23, 25 and 26, said Quinn Bryner, director of public relations at the amusement park. The park and ZooAmerica reopened on July 27, with most rides and attractions available, and the venues were fully operational on July 28, Bryner said.

Bryner would not say what type of coverage the park has, or whether it carries business-interruption coverage.

“We are still evaluating the impact of the event, but our operations and maintenance teams worked tirelessly to reopen the park as quickly as possible,” Bryner said in an email. “While we are still evaluating our overall response to this historic weather event, we are happy our guests and community members felt like we were responsive and transparent about what we were experiencing during the rain.”

Bryner later added: “Our evaluation process is ongoing and, as such, we aren’t able to provide any additional information at this point.”

Ernest said that many companies wouldn’t be able to sustain a long period of doors being closed, as evidenced after storms last year in Puerto Rico and Texas, where communities took weeks and months to recover. While coverage might not recoup all of the lost income from a forced closure, it could help bridge the gap until the doors re-open, he said.

Jessica Altman, Pennsylvania’s insurance commissioner, said her department has made a priority of educating consumers about flooding risks. Even though the state doesn’t have coastal flooding like hurricane-prone states in the South, Pennsylvania nevertheless routinely experiences losses from floods.

She recommends that all consumers, including businesses, review their coverage. They may find that coverage isn’t that expensive for communities outside designated flood zones, perhaps about $30 per month in low-risk areas. According to Ernest’s organization, there is no need to shop for coverage because the federal government sets rates, and coverage can be obtained through a company’s current carrier.

Altman said about a third of federal disaster aid goes to properties that are outside designated flood zones. If more people carried the insurance as a routine add-on to their property insurance, she added, the overall cost would go down for everyone.

“There are a lot of misconceptions about flood insurance,” Altman said. “People think what they have covers floods but it does not. And you can buy it no matter where you live.”

She monitored flood-related issues closely in July and agreed with an official from the Pennsylvania Emergency Management Agency who was asked what people should do to prepare for the next flood: “The No. 1 thing that people can do is to consider buying flood insurance.”

On a wider scale, Altman and Ernest said that the National Flood Insurance Program merits closer attention. Altman said the program needs a long-term fix, so that consumers and businesses, as well as insurers, can better plan. In recent years, funding for the program has become a political football, with a constant need to reauthorize funding, Ernest said.

He thinks it is time to reconsider the entire program, with the government getting out of the insurance business and turning it over to private companies. The federal government got involved decades ago because private insurers were not able to keep up with the losses, he said, but there could be ways to make it work through the private sector now, he said.

In the meantime, Pennsylvania policy holders can expect higher rates next year, Ernest added. State law prevents losses in another state from affecting rates in Pennsylvania. So while the hurricanes last year were devastating elsewhere, Pennsylvania was largely spared from similar losses, so rates remained steady. That is not the case with the July floods, he added.

“I would expect rate changes next year,” he said.

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