THE FLOOD INSURANCE OPPORTUNITY

By Martha Lester, MBA, CIC, CRM, CFE, AAI, AIC

According to Federal Emergency Management Administration (FEMA), property owners in areas without a high risk of flooding are five times more likely to experience a flood versus a fire, over the life of a thirty-year mortgage. One out of four flood insurance claims presented to the National Flood Insurance Program (NFIP) come from properties not located in a flood zone, yet a majority of people who live outside of a flood zone don’t purchase flood insurance. There are a number of reasons for this. The average consumer:

• Believes only those properties that are on, or very near, a body of water need, and can obtain, flood insurance.

• Doesn’t think about the coverage, If the lender doesn’t require it.

• The premiums for flood insurance are very expensive and, therefore, unaffordable.

• Thinks flood is covered by a homeowner’s or other property policy.

Prior to Hurricane Katrina, most properties did have to be in a flood-prone area to purchase the coverage and the community would have been required to have an approved flood control program in effect. As more properties not in flood zones were experiencing flood losses and the number of flood disasters was increasing, the federal government decided to go across the country and approve more areas for flood insurance eligibility. Today, there are very few communities in the United States where flood insurance is not available. There is an interactive map on FEMA’s website that indicates how many floods have occurred in various counties in each state from 1996 to 2019.

Opening more geographic areas for residents to be able to buy flood insurance assures that more homeowners and businesses have the ability to protect their property against this type of loss. In addition, this also allows the NFIP the ability to share or spread the risk amongst properties in and outside of flood zones -keeping the premiums affordable. Today, the majority of properties in the United States are eligible to purchase a Flood Policy. This includes renters and condominium unit owners.

Premiums for flood insurance vary based on a number of factors including the location, elevation of the property, the likelihood of flood loss in the community, the amount of coverage purchased, and the deductible chosen. The cost of coverage for a home, not in a flood zone, could be as low as $400 annually. The NFIP states that $700 is an average annual premium.

The average person does not have a thorough understanding of the various types of insurance policies that are available and what they cover. They rely on their agent to advise them and assist them in securing the coverages they need. When going through the purchase of a property, especially the first time, if the lender doesn’t require flood insurance and the consumer doesn’t see a body of water outside their window, they don’t think about the coverage.

This is an opportunity for the insurance professional to discuss the risks and coverage with their customer. Recommending a flood insurance policy to the client is assisting them in protecting their valuable asset. Not discussing the coverage is an open door for an Errors and Omissions claim.

The Power of One – Continued from Page 4

To all PIAW members, let me remind you that we are here to serve you and to help you integrate your skills and influence into an industry that needs you and will be better off because of your contributions. Please let us know how we can help you get the most out of your PIAW organization while also celebrating with you all the ways your life is enriched by contributing well.

“I am only one, but I am one. I cannot do everything, but I can do something. And I will not let what I cannot do interfere with what I can do.” –

Edward Everett Hale

Traditional homeowner’s and commercial property policy forms provide insurance protection against wind driven rain but exclude losses caused by floods. A flood insurance contract is a stand-alone policy. The peril cannot be added to an existing property policy. Although the contract may be written by one of the 50 + insurance company partners that work with the NFIP, the coverage is still financially backed by the federal government. All losses are paid by the federal government.

The policy provides insurance protection for water that forms a body and rises, such as heavy rain that accumulates on the ground and seeps into a building. The water must impact at least one other property besides the policyholder’s or at least two acres. In addition, flood-related mudslides from a mudflow, erosion caused by flooding, and overflow of inland or tidal waters are also covered. Flood insurance policies specifically exclude sewer backup unless it is the direct result of a flood. Additional information on coverages can be found on the NFIP’s website.

The maximum coverage available for residential property, through the National Flood Insurance Program, is $250,000 on the property and $100,000 on contents. Commercial properties can be insured up to $500,000 on the building and $500,000 on the contents. Building and contents coverages are purchased separately. The minimum $1,000 deductible applies once to the building and once to the contents. Higher deductibles are available. If additional limits of protection are needed, consult with your Excess and Surplus Lines carriers.

There is no policy requirement that the property be insured to replacement value for flood insurance. Property owners typically purchase coverage for that portion of the building, and the contents, that are likely to sustain damage should a flood loss occur.

There is a 30-day waiting period from date of policy purchase before coverage begins. There are exceptions including the new purchase of property in a flood zone where the lender requires coverage and on renewal, as long as the premium is paid on time. Check with https://floodsmart.gov/policyterms or the insurer who is assisting you with writing the flood policy for more information.

Flood insurance is one of the most under-recommended policies. Agents would be wise to educate the client on the risk of a flood loss and make coverage recommendations. Ultimately, the customer has to make the decision to purchase the protection and pay the premium.

Martha Lester, MBA, CIC, CRM, CFE, AAI, AIC has spent her entire career working in various aspects of the insurance industry and has been teaching insurance courses for more than thirty years.