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A Private Solution: Wading Through the Flood Insurance Marketplace

Flood insurance is often overlooked by agents and consumers alike. Now is the perfect time to educate clients about private market flood insurance options.
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As an independent insurance agent, you are a valued resource for your clients who depend on you for solutions to fit their unique needs. Unfortunately, there is one insurance need too often overlooked by insureds and many agents and brokers: flood insurance.

The typical flood insurance sale usually starts with a client saying something like, “My mortgage company says we have to buy a flood insurance policy.” Because the NFIP maintained a monopoly on flood insurance in the past, many producers still reflexively offer clients a policy under the NFIP with one of many Write Your Own (WYO) insurers administering the policy.

Today, consumers have more choice when it comes to flood insurance, and agents and brokers are widely recognizing that fact from both a competitive standpoint and from their position as insurance professionals. It’s in everyone’s best interest to make your clients aware of private market flood insurance options, which are often broader in coverage, lower cost and much easier to write than NFIP-backed coverage.

The private flood insurance market is expressing a broad appetite across all types of flood zones, and many producers are winning entire accounts using private flood insurance as their main differentiator.

A quarter of flood claims are recorded outside of designated flood zones, according to FEMA, and independent agents have an opportunity—some might say an obligation—to educate their clients on flood realities, as well as the fact that they have options for products and services.

Even though the NFIP has implemented rules that have the effect of impeding private flood insurance, the private market is growing at a rapid pace. At the same time, because of the NFIP’s inaccurate rates, limited coverage options and sub-par claims service, consumers are anxious for better options. 

The NFIP is, and will remain for many years, an important part of the American flood insurance solution. But insurance professionals must remember WYO (Write Your Own) flood insurers are not issuing private flood insurance. These WYO participants take no risk and have very little control over how policies are written and administered or how claims are handled.

In fact, without significant alteration, the NFIP Standard Flood Insurance Policy issued by these WYOs would be illegal to sell in essentially every state because it does not conform to many state regulations. As the residual market for flood insurance, the NFIP is logically the last place you should look for flood insurance.

True private flood insurers are fully private; they assume the risk, dictate how policies are written and administered, and how claims are paid. While the language used in some private policies may track certain parts of the NFIP Standard Flood Insurance Policy form, some private flood insurers provide enhanced coverage using industry normalized language that conforms with state laws and claims-paying practices.

At least one private flood insurance policy contains a series of policy enhancements including:

  • A broader definition of flood that does not require the flooding of at least two acres or two structures before coverage is triggered.
  • Additional living expense coverage
  • Coverage for multiple buildings
  • Coverage limits of up to $5 million, compared to the NFIP’s $250,000 limit
  • Debris removal
  • Replacement cost coverage
  • Basement contents coverage

Additionally, using private policies, claims can be adjusted by most independent adjusters, not simply those certified by the NFIP. This differentiator can prove beneficial after a major catastrophe when approved NFIP adjusters are in high demand, causing delays in claims adjustments and frustration for you and your clients.

So, if you haven’t been selling flood insurance or don’t understand the policy options available to your customers, now is the perfect time to read up. In the meantime, you can do your part to educate insureds on their current options. Flooding can occur anywhere. Know your clients’ risk and offer the best coverage and pricing available.

By Craig Poulton, CEO of Poulton Associates, LLC, which administers the Natural Catastrophe Insurance Program at CATcoverage.com.