Independent agents looking to provide flood insurance coverage for their clients must stay informed about the options, including those from the private market.
“What you don't know won't hurt you" is not a phrase agents and policyholders should put their faith in when it comes to the peril of flood. Being well prepared for a flood can involve several tactics, but one of the most important is the purchase of high-value flood insurance.
Misinformation or a lack of knowledge about flood insurance can cause problems not only for property owners but for producers as well. Now, with Risk Rating 2.0—FEMA's revamped risk assessment and rating methodology in play—knowing your way around the flood insurance marketplace has never been more important. This holds particularly true as the country enters hurricane season and focuses on CAT preparedness.
With record-breaking hurricanes and other storms leading to costly floods inside and outside FEMA-designated flood zones, more property owners are inquiring about flood coverage—and those who are not, in most cases, should be. At the same time, the federal government has made several changes to its National Flood Insurance Program (NFIP) that agents need to understand before securing quotes and policies for their clients.
When it comes to CAT preparedness, independent agents looking to provide comprehensive flood insurance coverage and superior service to their clients would be wise to stay informed of their options, including those from the private market.
Not all flood insurance is the same. While NFIP policies may be what you've heard the most about or what you've presented to your clients in the past, it's critical to understand the private flood market has grown in recent years and in many cases, offers more comprehensive coverage at better rates.
Here are some of the differences.
- The NFIP offers a maximum limit of only $250,000 in flood insurance coverage for residential property and $500,000 for commercial. Some private flood insurance providers can offer limits of up to $5 million on multiple properties all under one policy.
- Under the NFIP, more than two structures or two contiguous acres of land must be “inundated" for a flood to be considered a covered event. With some private providers, a broader definition of flood can be found offering property owners more comprehensive coverage.
- Private flood insurance is regulated by state insurance regulators, while the NFIP is not. Disputes must be adjudicated in federal court. If a policyholder has an issue with a private market flood provider, they have recourse through their state insurance regulator or state courts.
- Some private insurers offer coverage that allows for the increased cost of materials in the wake of catastrophic occurrences.
- There are private flood insurance programs that offer coverage for additional living expenses, basement contents and replacement cost on contents, none of which are provided by NFIP policies.
- NFIP policies have a waiting period of 30 days. Some private policies can be found with 15 day waiting periods.
Most private policies do follow the NFIP form very closely, but there are a small number that expand coverage beyond NFIP look-a-like policies. Agents need to know which policies offer the greatest value in order to serve their clients' best interests.
Keeping Up with Recent Changes
Aside from the differences in coverage, it's also important for agents to understand some of the more important changes the NFIP has made with the implementation of Risk Rating 2.0 and their impact.
Most of the old rules no longer apply and flood insurance agents need to familiarize themselves with an entirely new rating methodology. Clients will be receiving indications of the NFIP's assessment of their actual flood risk along with their renewal premiums.
Because there will be significant policy adjustments in many instances, agents must be prepared to provide reasonable answers to policyholder questions. Of course, agents should always supplement an NFIP quote with a quote from the private market to make sure their clients have an option.
Furthermore, it is important for agents to understand that under Risk Rating 2.0, policyholders still cannot choose to switch to a private market policy outside their renewal window. Until this rule is rectified, agents should carefully track their clients' NFIP renewal windows and present them with options for flood insurance well before the renewal date.
With hurricane season here, property owners are going to be looking to their agents for guidance on disaster preparedness. Aside from offering them preparedness tips and your usual flood policy, take the time to understand your options and help them understand theirs.
You have a duty as an insurance agent to provide your clients with the best possible products and services you can. Flooding events have cost the U.S. roughly $151 billion since 1980 and this trend shows no sign of stopping.
When it comes to preparing for a flood event, what you don't know can hurt you and your clients. Help your clients access new flood insurance related products and services that can lead to lower rates and in many cases to superior coverage and service.
Craig Poulton is CEO of Salt Lake City-based Poulton Associates LLC, which administers various catastrophe-related insurance products, including the country's largest private flood insurance program, the Natural Catastrophe Insurance Program.