Managing Coastal Commercial Property Exposures

Coastal environments contribute to a small portion of land in the United States. However, they are some of the most popular spaces for commercial real estate, primarily due to their economic benefits. Specifically, coastal areas are major tourism and population hubs, with 40% of U.S. residents living near beaches and harbors, according to the National Oceanic and Atmospheric Administration (NOAA). Residential properties in these environments are increasingly valuable due to high demand and limited availability, often attracting more affluent markets. Altogether, having commercial properties in these areas can allow businesses to be closer to their customers, increase brand awareness and drive up total profits.

Nevertheless, coastal environments also pose risks, including heightened natural disaster exposures, environmental issues and human concerns. These risks have become more prevalent in recent years, causing widespread commercial property damage. Coastal businesses need to be aware of these risks and take steps to address them. This post provides more information on coastal commercial property exposures, associated coverage considerations and risk mitigation strategies.

Coastal Commercial Property Exposures

Many types of commercial properties can be found in coastal environments, including hotels, restaurants, office buildings and retail spaces. While specific risks may vary among industries, some of the most common exposures facing coastal commercial properties include the following:

Natural Disasters

The past few decades have seen natural disasters soar in frequency and severity, often leaving behind severe property damage among affected establishments. In the last five years alone, NOAA has confirmed that the median annual number of billion-dollar weather and climate disasters in the United States exceeded the previous decade’s average by more than 55%, causing nearly 2,000 fatalities and costing over $615 billion in damage. In particular, coastal properties are most susceptible to hurricanes, tropical storms and flooding, which can devastate surrounding communities. Moreover, climate experts anticipate that natural disaster trends will only worsen in the coming years, thus exacerbating coastal commercial property losses. To learn more about preparing for natural disasters, click here.

Environmental Issues

Due to their proximity to the ocean, coastal commercial properties are more likely to be impacted by saltwater corrosion than their inland counterparts. Such corrosion can weaken building materials over time, resulting in structural issues. Additionally, saltwater corrosion can break down the metal components in electrical systems; this can cause short circuits and other fire hazards. As sea levels continue to rise, coastal commercial properties have become more vulnerable to storm surges, which can leave behind standing water and excess moisture following natural disasters. This moisture can foster rampant mold and mildew growth, posing significant health risks. Rising sea levels may even produce erosion issues, especially for properties directly on the shoreline. In severe cases, erosion could cause these properties to collapse into the ocean.

Human Concerns

Some coastal commercial properties, particularly those in the retail and hospitality sectors, may generate more business from visitors and tourists during peak travel periods (i.e., spring and summer). Even though these periods can boost profits, they may leave properties extremely busy and overcrowded, making it more difficult to keep up with building maintenance and ensure the same level of service as off-peak periods. This, in turn, could contribute to an increase in third-party accidents and injuries, causing major liability issues. Regardless of industry, coastal commercial properties in high-traffic areas (i.e., downtown) could also be more susceptible to losses from criminal activities, such as theft and vandalism.

Coverage Considerations

Businesses along the coast can use standard commercial property insurance to maintain financial protection against specific perils that could impact their buildings and other physical assets; however, this policy may exclude coverage for losses caused by some coastal exposures. Businesses must secure additional coverage to address their coastal risks. Here are some coverage offerings for businesses to consider:

Wind Insurance

Wind insurance may reimburse the cost of repairing or replacing commercial property impacted by hurricane- and tropical storm-related wind damage.

Flood Insurance

Flood insurance can help pay for flood-related commercial property losses, including those caused by natural disasters, rising sea levels and storm surges. Learn more about flood insurance here. To learn more about how flood insurance works, click here.

Business Interruption Insurance

Business interruption insurance may compensate lost income and typical operating expenses during temporary shutdowns or business closures caused by disruptive events, including natural disasters, theft and vandalism. To learn more about business interruption insurance, click here.

General Liability Insurance

General liability insurance can help pay for third-party injuries and property damage, such as those affecting visitors and tourists, that occur on-site or during business operations. Environmental incidents are generally excluded from this coverage. To learn more about general liability insurance, click here.

Environmental Insurance

Environmental insurance may reimburse cleanup costs, third-party injuries and property damage stemming from the unanticipated release of pollutants, including mold and mildew, during business operations. Learn about environmental impairment liability insurance here.

Risk Management Strategies

In addition to purchasing ample coverage, coastal businesses need to implement effective risk management strategies to prevent damage and losses from occurring. These strategies include the following:

• Conduct a risk assessment. Businesses should routinely review and document their specific coastal risks to ensure they adopt the most effective mitigation techniques for their properties and operations.

• Use physical safeguards. While coastal exposures can’t be eliminated entirely, a wide range of physical safeguards are available to help businesses minimize property damage from them. These safeguards include using reinforced construction materials and building methods; elevating essential structures, equipment and utilities; and installing storm shutters and flood barriers on windows and doors.

• Ensure proper landscape management. Landscaping strategies may also help businesses protect against losses from coastal exposures, namely erosion and flooding. These strategies include planting vegetation with deep roots around buildings and structures to keep the soil in place and create natural flood barriers; mulching any bare soil; installing erosion control blankets, anchoring devices and slit fencing; and utilizing grading and paving techniques to promote sufficient drainage.

• Perform routine maintenance. By adopting regular maintenance procedures, businesses can keep their coastal properties in good condition and detect possible signs of building and structural issues (e.g., saltwater corrosion and mold and mildew growth) before they cause more widespread damage.

• Be prepared. Businesses must address coastal risks in their business continuity and emergency response plans. By doing so, they can better protect their employees during coastal disasters and foster continued operational success.

• Consult the experts. Businesses don’t have to navigate their coastal exposures alone. They can consult trusted insurance professionals, NOAA guidance and government resources for in-depth preparedness and loss control strategies.

Manage Risks to Avoid Major Losses

Setting up commercial properties in coastal environments can have economic benefits, but these areas also pose serious challenges for businesses to consider. Reviewing the risks associated with coastal areas can equip businesses with the knowledge and resources to manage their exposures effectively and avoid major losses. Contact us today for risk management guidance and coverage solutions.

Related Reading: Addressing Extreme Weather Events Through Captives

The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.