Flood Insurance Guide THE INSURANCE AGENT S ROLE IN PROTECTING HOMEOWNERS

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1 Flood Insurance Guide THE INSURANCE AGENT S ROLE IN PROTECTING HOMEOWNERS

2 Table of Contents Introduction... 3 Your Clients Need Flood Insurance... 5 For Most of the U.S., Flood Insurance Is Highly Affordable... 7 Protecting Clients Is Fast and Easy... 8 Getting Started MOVING FROM PRODUCER COMPLIANCE TO COMPETITIVE ADVANTAGE

3 3 Introduction Imperatives for the Agency of the Future Q: How many of your clients are at risk of suffering damage to their homes from flooding? A: All of them. Every home, whether it s located in coastal South Carolina, upstate New York, the Pacific Northwest, the desert Southwest or the Midwestern plains, is vulnerable to flooding. And because flood damage is excluded under standard homeowners insurance policies, your current and prospective clients are at risk of significant financial losses due to flooding. They probably don t even realize the danger. Given the risks, why aren t insurance agents who act as trusted advisors to insured homeowners offering flood insurance protection to every homeowner? Part of the reason for the lack of flood insurance is a widespread misconception about risk. Homeowners and agents don t fully understand that even if a dwelling is located in a low risk area, a homeowner can still benefit from flood insurance protection. By offering flood insurance to those homeowners in low to moderate risk areas, agents can benefit in several ways. In addition to doing the right thing by protecting homeowners who likely don t truly understand their flood risk, insurance agents have an opportunity to: Grow their business Deepen their customer relationships Earn commissions Protect themselves from errors and omissions (E&O) litigation 25% of flood losses come from homeowners in low risk areas those same homeowners who don t believe they need flood insurance. 1 3 FLOOD INSURANCE GUIDE: THE INSURANCE AGENT S ROLE IN PROTECTING HOMEOWNERS

4 3 Imperatives for the Agency of the Future Offering flood insurance is easier than many agents think. There are two main categories of flood hazard. While it s true that writing flood insurance in a high risk flood area does require more complex and stringent underwriting and elevation certificates, writing flood insurance in areas eligible for preferred risk policies is straightforward. The good news for agents is that most of the United States falls into the preferred risk category. Less than 10% of homes carry flood insurance. 2 The Great Midwestern Flood In 1993, during the Great Midwestern Flood, river levels were nearly 20 feet above flood stage in areas like St. Louis, Missouri. The flood lasted more than four months, ruined 49,000 homes, and caused at least $16 billion in property damage. Source: National Flood Insurance Program 4 FLOOD INSURANCE GUIDE: THE INSURANCE AGENT S ROLE IN PROTECTING HOMEOWNERS

5 Your Clients Need 3 Flood Imperatives Insurance for the Agency of the Future Floods are the number one disaster event in the United States and the risk of a flood is very real no matter where you live. In the past five years, all 50 states have experienced floods or flash floods. 3 In high risk areas, there is at least a 1 in 4 chance of flooding during a 30-year mortgage. 4 In moderate to low risk areas, the risk is reduced, but not completely removed. Homeowners in high risk areas are already well aware of the risks of flooding. Many seek out flood insurance policies either voluntarily or because they have a federally backed residential mortgage and are mandated by their mortgage lender to carry flood insurance. Then there are the homeowners in low risk areas that are most in danger and who represent the biggest untapped market for agents. Flood damage from hurricanes and tropical storms are not limited to coastal areas. In 2011, Hurricane Irene made landfall in North Carolina. By the time it moved up the East Coast, it was downgraded to a tropical storm. But this tropical storm caused widespread flooding damage in Vermont, hundreds of miles from the coast. Hurricanes and tropical storms may be two of the most obvious causes of flood, but a flood is defined as any event in which water rises from any source. Floods can be caused by: Overtopped levees Outdated/clogged drainage systems Rapid accumulation of rainfall Snowmelt/spring thaw Ice damming Construction and new development that disturbs natural drainage A flood is a general and temporary condition where two or more acres of normally dry land or two or more properties are inundated by water or mudflow. 5 Torrential Rains in Tennessee In 2010, various areas surrounding Nashville, Tennessee, received nearly 20 inches of rain in a two-day period. Some of these sites had rainfall measurements exceeding the amount of rain from Hurricane Katrina. The Cumberland River in Nashville hit a post flood crest of feet, flooding parts of downtown Nashville. More than 11,000 structures were damaged. Losses totaled more than $226 million with an average paid amount of $55,000. Source: National Flood Insurance Program 5 FLOOD INSURANCE GUIDE: THE INSURANCE AGENT S ROLE IN PROTECTING HOMEOWNERS

6 3 Imperatives for the Agency of the Future For example, there are more than 79,000 dams in the United States and one-third of these dams pose a significant risk if they collapse. 6 Levees and floodwalls contribute to flood risk, as well. In the United States, 43% of the U.S. population lives in counties protected by levees. 7 Twenty-two percent of the nation s counties contain levees, and only half of them are in good shape. 8 Flooding doesn t have to be catastrophic to impact homeowners financially. Homeowners policies only cover water that is coming down, such as rain, but do not cover rising water. Even a few inches of water in a dwelling can result in thousands of dollars in damages. Floods are the nation s leading natural disaster. Anywhere it rains, it can flood. 9 Top 5 Average Paid Losses Occurred Outside of Hurricane Zones ➊ Superstorm Sandy (NY/NJ/CT) October 2013: $59,553 ➋ Torrential Rain (TX) March 2009: $38,620 ➌ Flooding (CO) September 2013: $37,469 ➍ Flooding (NY/NJ/PA) June 2006: $35,613 ➎ Mid-spring Storms (Midwest) April 2011: $33,334 Source: FEMA, May FLOOD INSURANCE GUIDE: THE INSURANCE AGENT S ROLE IN PROTECTING HOMEOWNERS

7 For Most of the U.S., Flood 3 Insurance Imperatives Is Highly for the Affordable Agency of the Future The National Flood Insurance Program (NFIP) was created by the federal government in 1968 to provide homeowners access to affordable flood insurance protection. Communities that adopt and enforce a flood plan management ordinance to reduce the risk of floods can participate in NFIP. To encourage widespread usage of NFIP, FEMA created the Write Your Own (WYO) program in 1983, granting insurance carriers the ability to contract with the federal government to write and service NFIP policies in their own names. The insurance carrier underwrites the policies and processes claims, but FEMA retains responsibility for all risks. As of October 2013, 84 insurance companies participated in WYO, according to Insurance Information Institute. NFIP designates communities in which flood policies can be written based on risk. Those communities not in a Special Flood Hazard Area typically qualify for a Preferred Risk Policy (PRP). PRPs for low risk areas start, for example, as low as $129 per year and include a minimum of $20,000 in building coverage and $8,000 in contents coverage. A policy with $200,000 in building coverage and $80,000 in content coverage is as low as $427 per year. In addition to providing low-cost coverage, PRPs do not require elevation certificates or complicated underwriting. Commissions for flood insurance are comparable (if not a bit higher) than traditional homeowners policies, with a typical flood insurance policy providing a commission between 15%-24%. Of 20 homeowner policies written per month, 50% include flood coverage: Average flood insurance cost: $427 per year Average commission: $85 per policy Potential earnings on 10 flood policies: $850 per month or $10,200 per year Commissions Add Up In the past, some agents determined that offering flood insurance to customers simply wasn t worth it. Having to work with multiple workflows and logging into separate insurance underwriting systems was time-consuming. Many worried that they would be required to order expensive elevation certifications. A combination of factors makes flood insurance a win-win for customers and for agents, including the ability to create a flood insurance proposal at the same time as quoting a homeowners insurance policy, and low cost and no documentation PRPs. Customers are protected against losses from flood damages. With only a few minutes of work, agents can earn additional commissions. An agent who writes 20 homeowners insurance policies per month and converts only 50% to additional flood coverage can easily earn $850 extra in commissions per month or $10,200 in commissions in a year. 7 FLOOD INSURANCE GUIDE: THE INSURANCE AGENT S ROLE IN PROTECTING HOMEOWNERS

8 Protecting Clients 3 Is Imperatives Fast and Easy for the Agency of the Future Writing flood insurance is now easier than many agents realize. Vertafore takes the complexity out of flood insurance through a partnership with National Flood Services. Vertafore PL Rating automatically generates a flood proposal at the same time the agent quotes a homeowners policy. There is no additional cost to create the proposal and share with clients. By writing flood insurance at the same time as homeowners insurance policies, it takes agents only a few moments to earn additional commissions through a flood policy. 8 FLOOD INSURANCE GUIDE: THE INSURANCE AGENT S ROLE IN PROTECTING HOMEOWNERS

9 3 Imperatives for the Agency of the Future The flood policy proposal shows homeowners: A personalized risk assessment with coverage protection and loss scenarios Estimated annual premium Total estimated cost savings with coverage in the event of a flood Graphical representation of the flood risk for the property Information on flood claims and losses in that county An E&O waiver of responsibility If the customer accepts the proposal, PL Rating transmits the customer information directly to National Flood Services FloodPro system to complete the quote, eliminating re-keying policy data and expediting the process. If the customer declines the proposal and elects not to purchase flood insurance, the agent can ask the customer to sign the Agency Responsibility Waiver form on the flood proposal. This will help protect the agent from E&O liability by ensuring that agents consistently offer flood insurance to every eligible customer. By writing flood insurance at the same time as homeowners insurance policies, it takes agents only a few moments to earn additional commissions through a flood policy. 9 FLOOD INSURANCE GUIDE: THE INSURANCE AGENT S ROLE IN PROTECTING HOMEOWNERS

10 3 Getting Imperatives Startedfor the Agency of the Future Agents who already have an appointment with an insurance carrier that participates in the NFIP WYO program may already be licensed to write flood insurance. If not, take a short flood course (approximately three hours) from one of several certified providers: FEMA ( WebCE ( RegEd ( Agents can also sign up for the Agent Referral Program. It s a free program offered by FloodSmart that supplies qualified leads to agents at Agents.FloodSmart.gov. RESOURCES For more information on how flood insurance works, the benefits for agents and homeowners, and for help on educating homeowners about their risks, visit: million homes are not insured against floods. 10 VERTAFORE PL RATING SOLUTION Vertafore PL Rating is the only solution that allows agents to quote flood insurance at the same time they quote homeowners insurance. To learn how Vertafore simplifies offering flood insurance to your clients, protecting them from flood risks while increasing your commissions all with a few easy steps visit July 2013 Sources 1, 2, 3, 4 FloodSmart.gov 5 National Flood Insurance Program National Inventory of Dams, U.S. Army Corps of Engineers 7 FEMA National Inventory of Dams, U.S. Army Corps of Engineers 9 Insurance Information Institute, March FloodSmart.gov 10 FLOOD INSURANCE GUIDE: THE INSURANCE AGENT S ROLE IN PROTECTING HOMEOWNERS

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