Wildfires, Earthquakes, and Floods: Does Your Small Business Have the Right Hazard Insurance?

If you run a small business in California, you’re no stranger to nature’s power: unpredictable wildfires, temblors in earthquake country, and seasonal rainstorms that lead to floods or mudslides. In 2025, Los Angeles alone suffered wildfires with economic losses estimated between $28 billion to $53.8 billion, and up to $8.9 billion in business interruptions.

These disasters aren’t distant headlines—they can hit your storefront, kitchen, or workshop directly.

California’s patterns of wildfire, quake, and flood mean the right hazard insurance for small business isn’t just a nice-to-have—it’s a vital tool for survival.

What Does “Hazard Insurance” Mean for Small Business?

A common starter is a Business Owners Policy (BOP). It bundles:

• Property damage (fire, wind, limited water)
  
• General liability
  
• Business interruption due to covered perils

But here’s the catch: BOPs don’t cover everything. Standard BOPs typically don’t include earthquake, flood, or mudslide coverage.

• For earthquakes, business owners must buy special endorsements or separate policies—standard ones won’t cover seismic damage.
  
• For floods or mudslides, coverage often comes through the National Flood Insurance Program or private flood policies—not through a BOP .
  
• Wildfire coverage is usually included—but insurers may impose higher premiums, deductibles, or even drop coverage in high-risk zones unless you use state “last resort” plans.

California-Specific Laws & Programs

1. California Safe Homes Act (AB 888) – 2025

This new law incentivizes wildfire resilience, making it easier and cheaper to insure structures with fire-safe measures like:

• Fire-resistant roofing
  
• “Zone 0” defensible space around buildings

If your small business building follows these, you may earn insurance discounts and better market access.

2. FAIR Plan: The State’s Insurance Safety Net

The FAIR Plan offers coverage to properties rejected by private insurers due to wildfire risk. As of January 2025:

• 22% of structures in the Palisades Fire area were covered by FAIR
  
• Plans to pay out billions, but only $377 million in reserves + reinsurance

This is a last-resort option—but coverage is limited and often pricier.

3. Reinsurance Pass-Through Rule (2025)

From January 2025, insurers can pass reinsurance costs onto you—but must still serve wildfire-prone areas. They may raise rates by ~30–40% .

4. Earthquake Fault Disclosure & Zoning Act (Alquist‑Priolo, 1972)

While it mostly covers residential areas, it affects property values near fault lines. For commercial or mixed-use properties, being aware of this can clarify risks—and influence insurance needs .

Real-World Impact: Lessons from 2025

1. Los Angeles Wildfires
   The 2025 Palisades and Eaton Fires caused $28–54 billion in property damage and $4.6–8.9 billion in business losses over five years.
   
2. Insurance Crisis & FAIR Plan Tax
   Insurers faced a $1 billion levy to cover wildfire claims, causing many to exit the state. This pushed more businesses into FAIR—often with higher costs.
   
3. Mudslide & Fire Link via Proximate Cause
   A wildfire that burns hillside vegetation makes mudslides more likely. Under California law, if the wildfire triggered the landslide, damage could be covered—even though the slide itself might be excluded.
   
4. Earthquake Insurance Gaps
   Many businesses do NOT buy earthquake insurance—even though California holds ⅔ of U.S. quake risk. Deductibles can reach 20%, and policies cost over $800/year with 10–15% deductibles for a $1 million property.

Practical Steps for Your Business

1. Assess Risks
   Use Cal Fire maps, local zone info, and site inspection to determine if your property lies in wildfire, flood, or Alquist-Priolo zones.
   
2. Talk to a Licensed Insurance Broker
   Confirm you have:
   
   • A BOP with wildfire and wind coverage
     
   • Earthquake insurance (endorsement or standalone)
     
   • Flood/mudslide policy if you’re in a flood/mud risk zone
     
3. Boost Mitigation Efforts
   Install fire-resistant roofing, create defensible space, anchor water heaters, and retrofit buildings. These can:
   
   • Unlock AB 888 wildfire fire discounts
     
   • Qualify for lower insurance premiums
     
4. Compare FAIR Plan vs Private Insurance
   FAIR Plan offers coverage but usually costs more and caps coverage. Always aim for private wildfire coverage first.
   
5. Prepare an Emergency Plan
   Insurance replaces money—it doesn’t bring back business. Have backups: alternate locations, emergency funds, supplier contacts.
   
6. Document Everything
   Keep photos, maintenance logs, safety upgrades, and receipts. This helps with claims and deductible reductions.

Final Words

For California small business owners, questions about hazard insurance for small business aren’t hypothetical—they’re urgent.

You need:

• A BOP as your base
  
• Earthquake and flood add-ons or separate policies
  
• Mitigation efforts to reduce risk and secure discounts
  
• Awareness of state programs like AB 888 and FAIR Plan
  

Natural disasters aren’t questions of “if,” but “when.” With clear planning, the right policies, and proactive steps, your small business stands a much better chance of surviving—and thriving—no matter what California throws your way.