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Flood Insurance 101: What Agents Need to Know

Posted By Jim Albert, Tuesday, May 28, 2019

from PropertyCasualty360.com

Climate change, hurricanes, rising sea levels, floods. Today’s news sounds positively biblical, and consumers are looking for answers — and reassurance. That’s why insurance agents today need the latest information and technology to provide their customers with the solutions and peace of mind they need. Here’s what you need to know:

What constitutes a flood, exactly?

To be classified as a flood, two or more acres of normally dry land or two or more properties must be inundated by water or mudflow. Floods are the U.S.’s most common natural disaster and just “one inch of water in a home can cost more than $25,000 in damage.” (The average loss in a flood is $46,000.)

Who’s at risk?

Short answer: potentially everyone. Some are just at a higher risk than others. Given the changing climate, floods now occur in all 50 states and every month of the year. Since 2014, there have been major floods in New York, Missouri, Oklahoma, Louisiana, and the Ohio River Valley, to name a few of many.

FEMA isn’t keeping up

FEMA is mandated to produce maps of areas at high risk of flooding. If your home is in one of these high-risk areas, you are required to carry flood insurance. However, FEMA’s flood zone maps are often outdated and inaccurate.

Even if the FEMA map says your home is in a low-risk zone, your actual risk of flooding may be significantly higher. In Hurricane Harvey in Houston in 2017, for instance, approximately 82% of those who suffered losses were in areas not considered at high risk of flooding, and at least 25% of all flooding happens outside “high hazard” areas.

Standard homeowners’ policies don’t cover floods

Although there are federal and private markets for flood insurance — the NFIP has 89% of the market — NFIP policies have low coverage limits and don’t cover external structures, replacement cost, or temporary living expenses if a flood forces the homeowner from her home. Consumers also probably don’t realize that when FEMA comes in behind a flood and offers assistance funds, these are often not gratis. They are either low dollar grants that don’t cover all your losses, or government loans that must be repaid.

As an agent, it’s a smart move to protect your errors and omissions (E&O) by offering a flood insurance quote along with every homeowner’s quote.

What can agents do?

  1. Don't let your customers go underinsured and misunderstand what coverages they need.
  2. Make sure consumers read their policy from top to bottom, so they know how and where claims would be processed. In the event of a loss they need to be confident the settlement will be paid in full and on time. They should also understand the difference between replacement costs and actual cash value in regard to their insurance.
  3. Take advantage of the optional coverages such as Temporary Living Expense, and Replacement Cost on Contents. These simple options make a huge difference in the homowner's experience if they have a flood at their property.

Most of all, agents need to be able to reassure their customers that they are in good hands. By knowing the facts yourself, you can inform consumers about what they need and match their needs to the right product.


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