Flood Insurance 101 WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
Table of Contents Introduction... 3 Who Is at Risk? Answer: Everyone... 5 Helping Customers Understand Their Flood Risk... 7 How to Start the Conversation with Clients... 12 Conclusion.... 13 2 MOVING FROM PRODUCER COMPLIANCE TO COMPETITIVE ADVANTAGE
3 Introduction Imperatives for the Agency of the Future In the past five years, a flood or flash flood event has occurred in all 50 states. No state and no homeowner is immune from the risk of flood. Although homeowners in hurricane-weary states, such as Florida and Louisiana, are well aware of their risk of flood damage and may be required by their lender to have flood coverage, few homeowners in other areas of the country understand their flood risk. They often mistakenly believe that their homeowners policy will cover flood damage. Or, they underestimate their risk because the area has not flooded in the past. But flood history is only one risk factor, and risk can significantly increase over time due to building development that upsets topography,or aging infrastructure such as levees and dams. If every homeowner fully realized their flood risk, understood that a standard homeowners policy excludes flood damage, and how affordable flood insurance can be, many more would opt for flood coverage. As a trusted insurance agent, you already provide insurance products that protect your personal lines customers, like home and auto insurance. Unfortunately, flood insurance is often overlooked. Insurance agents have a valuable role to play in educating every client who owns a home about their risk, especially if they are not located in a high-risk area. In the past five years, a flood or flash flood event has occurred in all 50 states. 3 FLOOD INSURANCE 101: WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
3 Imperatives for the Agency of the Future In addition to protecting clients from financial distress caused by flood damage, offering flood insurance consistently for all homeowners also helps protect agents from errors and omissions (E&O) liability lawsuits. For agents, flood insurance also provides additional commission income in exchange for minimal effort. A Preferred Risk Policy (PRP), available to homeowners in low to moderate risk areas, does not require complicated and costly elevation certifications, and you can create a flood policy proposal in minutes at the same time you quote a homeowners policy. The key to ensuring that your policyholders get the insurance coverage they need is to educate clients about their real flood risk and how a low cost flood insurance policy can protect them from thousands of dollars in flood damages. When is the most opportune time to educate clients? Taking just a few minutes as you provide a quote for homeowners insurance. For agents, flood insurance provides additional commission income in exchange for minimal effort. 4 FLOOD INSURANCE 101: WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
Who Is at Risk? 3 Answer: Imperatives Everyone for the Agency of the Future The statistics surrounding flooding are sobering to most homeowners. Very few realize that floods are the number one disaster in the United States. 1 Many homeowners are also unaware of just how financially devastating a flood can be. Between 2007 and 2011, the average flood claim was nearly $33,000. 2 Even a few inches of water in a dwelling can result in thousands of dollars of damage. Few homeowners have the resources to handle that type of hit to their finances. The amount of flood damage incurred has little to do with location. Florida and North Carolina, two states in traditional hurricane paths, have average losses of $22,595 and $16,106, respectively. Some of the highest average flood claims are in areas not thought to be at risk of flood: 3 Nevada: $43,895 North Dakota: $44,911 New Hampshire: $45,469 New York: $67,107 Floods are a year-round risk that is not limited to the traditional hurricane season. In the Midwest and Northeast, snowfall, ice jams and rapid snowmelt can cause flooding. In the Northwest, heavy winter rains can cause mudflows. For example, in August 2011 saturated ground on the East Coast could not absorb the heavy rainfall of Tropical Storm Lee. The worst flooding occurred in the inland southern tier of New York and Pennsylvania from the overflowing Susquehanna River and its tributaries. In yet another example of non-hurricane related flooding, heavy rainfall in April 2013 caused flash flooding and rapidly rising rivers and streams in many counties in Illinois, causing more than $85 million in losses. In Colorado, more than 20 inches of rain fell over six days in September 2013, causing a 150-mile swath of flooded structures. Heavy snowfall in the winter of 1995-1996 resulted in thick snowpack in areas throughout Washington and Oregon. A heavy rain and rapidly rising temperatures in February resulted in $61 million in flood losses with an average flood claim of almost $27,000. Between 2007 and 2011, the average flood claim was nearly $33,000. 5 FLOOD INSURANCE 101: WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
3 Imperatives for the Agency of the Future The list of non-hurricane flooding events is long and flooding can occur anywhere at any time, putting every homeowner at risk. In fact, 25% to 30% of annual flood losses come from homeowners in low risk areas. But weather is not the only cause of flooding. A flood is defined as any event in which water rises from any source. Floods are caused by events including: Overtopped levees Outdated/clogged drainage systems Rapid accumulation of rainfall Snowmelt/spring thaw Ice damming Construction and new development that disturbs natural drainage There are more than 79,000 dams in the United States, and one-third pose a significant risk if they collapse. 4 Forty-three percent of the U.S. population lives in counties protected by levees. 5 Levees can fail for many reasons. Perhaps heavy rainfall causes water levels to rise higher than the levee s crown (overtopping) or the levee is breached due to a structural issue caused by erosion or even burrowing animals. 25% to 30% of annual flood losses come from homeowners in low risk areas. 6 FLOOD INSURANCE 101: WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
3 Helping Imperatives Customers for the Understand Agency of the Their Future Flood Risk There are several ways to educate customers on the risks of not having flood insurance: LEVERAGE ALREADY EXISTING MARKETING MATERIALS Leverage already existing marketing materials Use customer testimonials Debunk lingering flood insurance myths Create a detailed flood proposal Ask homeowners who decline coverage to sign a waiver The federal government provides a variety of marketing materials designed to educate consumers on flood risk and the affordability of flood insurance. Rather than create your own materials, leverage the brochures, fact sheets, interactive tools and videos available on the following sites: www.fema.gov/nfip www.floodsmart.gov www.agents.floodsmart.gov www.floodtools.com 7 FLOOD INSURANCE 101: WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
3 Imperatives for the Agency of the Future USE CUSTOMER TESTIMONIALS Another method of helping clients understand their flood risk is to share testimonials from homeowners who have experienced first-hand the devastation of flooding in geographic areas similar to their own. FloodSmart.gov has a variety of testimonials available. Here are just a few excerpts: From Waterbury, Vermont, describing Hurricane Irene: I never thought that anything like that would happen here. Never. It reminded me of a warzone. The insurance company declared our house 85% destroyed. I was able to rebuild my home because I had flood insurance. From Des Moines, Iowa, describing a levee breach: I opened the front door and came in the house and saw everything covered with mud. The only thing that saved us was having the flood insurance. From Atlanta, describing the aftermath of 18 inches of rain in 18 hours: I did not have flood insurance because I was not in a flood plain, so we were told we didn t need it. Things are a lot more difficult because of no insurance. I m paying a mortgage plus having to pay for someplace else to live. Everything was it was just like somebody had dropped a bomb inside the house. Everything was just destroyed. 8 FLOOD INSURANCE 101: WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
3 Imperatives for the Agency of the Future DEBUNK LINGERING FLOOD INSURANCE MYTHS Homeowners often misunderstand flood insurance. Be prepared to counter client misconceptions with facts. The following are the most common myths: Homeowner: I don t need flood insurance because I m not located in a flood zone. Agent: Everyone can use flood insurance since flooding events occur in all 50 states and 25% of flood losses come from homeowners in low risk areas. Everyone is in a flood zone. Homeowner: I can t get flood insurance. Agent: Everyone can get flood insurance, no matter where they live in the U.S. And you can get flood insurance even if your home has been flooded before. Homeowner: I m already covered by my homeowners insurance policy. Agent: Homeowners policies only cover damages caused by falling water. They do not cover damages from rising water. Flood insurance is the only insurance product that can protect you from flooding events. Homeowner: I ll get flood insurance if I think there will be an increased risk. Agent: You won t have time. Flood insurance requires a 30-day wait period for voluntary purchases. In addition, flooding is often caused by freak weather events or manmade disasters that are unpredictable. Homeowner: I already paid off my mortgage, so I don t need flood insurance. Agent: Even a few inches of water can cause thousands of dollars in damages, wiping out savings or causing you to go into debt. Having paid off the mortgage does not eliminate flood risk. 9 FLOOD INSURANCE 101: WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
3 Imperatives for the Agency of the Future Homeowner: In a flood, the federal government will cover damages. Agent: To receive federal assistance, the area must be declared a federal disaster area by the president of the United States. Even if an area is declared a disaster area, federal assistance is in the form of a loan that you must qualify for and pay back with interest, typically 4%. The loan term can be up to 30 years, meaning that even if you pay off your mortgage you ll still be paying off the flood assistance loan. The payment on a $50,000 loan at 4% interest for 30 years would be about $240 per month, or $2,880 per year. Total interest on the loan would be almost $36,000, turning the cost of $50,000 in flood damages into a total cost of $86,000. Homeowner: Flood insurance is expensive. Agent: If your home is not in a designated high-risk zone, you can purchase a Preferred Risk Policy (PRP). For example, you can get a policy that covers $20,000 in building and $8,000 in contents coverage for $129 per year, or one for $250,000 building coverage and $100,000 contents coverage that costs $412 per year. 6 For this low price, you will protect your home and the foundation. Building coverage includes electrical; air conditioning; heating and plumbing systems; flooring, such as carpeting; wallboard and debris removal. Contents coverage includes all personal belongings, such as clothing, furniture, electronics, window treatments and appliances. Another option is to select a contents-only policy, which starts at only $57 per year for contents above ground. 10 FLOOD INSURANCE 101: WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
3 Imperatives for the Agency of the Future CREATE A DETAILED FLOOD PROPOSAL A flood proposal that includes a graphical personalized risk assessment of coverage protection and loss scenarios is another tool that agents can use to educate homeowners about flood insurance. The proposal should be much more than a simple policy quote with estimated premiums. It should include not only the cost of insurance, but also why a homeowner needs flood coverage. The proposal should display the home on a map and outline the risk of flood, how many other homeowners have flood insurance, how many losses there have been, and what a likely loss would be based on one or more feet of water. ASK HOMEOWNERS WHO DECLINE COVERAGE TO SIGN A WAIVER Having homeowners sign a waiver that they are declining flood insurance serves a dual purpose. First, signing the waiver forces homeowners to pause and consider the seriousness of declining coverage. Second, a signed waiver helps protect agents from E&O liability. 11 FLOOD INSURANCE 101: WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
How to Start the 3 Conversation Imperatives with for the Clients Agency of the Future Agents in areas of the U.S. not prone to hurricanes may be unfamiliar with how to sell flood insurance. Flood insurance, like any insurance product, requires that agents first educate themselves on the product and then educate clients. The following are some best practices for getting the flood insurance conversation started: 1 If you already have an appointment with an insurance carrier that participates in the National Flood Insurance Program (NFIP) Write Your Own (WYO) program, you may already be licensed to write flood insurance. If not, take a short flood course (approximately three hours) from one of several certified providers: 2 3 4 Sign up for the Agent Referral Program at Agents.FloodSmart.gov. It s a free program offered by FloodSmart that supplies qualified leads to agents. Review your existing book of business and market flood insurance to existing homeowners clients. Remind customers about the importance of flood insurance, whether through targeted mailings, emails or social media. Review flood maps for the areas in which you do business to understand flood risks. Keep abreast of changes to the flood map. If a homeowner was in an area formerly designated low risk, they may still benefit Flood insurance, like any insurance product, requires that agents first educate themselves on the product and then educate clients. FEMA (www.fema.gov/nfip) WebCE (www.webce.com) RegEd (www.reged.com) 5 from lower PRP rates through the PRP Extension. For more about flood maps, click here. Using Vertafore PL Rating, create a flood insurance proposal and discuss with your clients every time you quote a homeowners policy. 12 FLOOD INSURANCE 101: WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
3 Conclusion Imperatives for the Agency of the Future As a savvy insurance agent, offering flood insurance to homeowners is a good business practice. First, you can help educate your clients on their real flood risks and offer them a product that can protect their home and their family, positioning you as a trusted agent. Second, you will be able to deepen your client relationships by selling additional products. Third, you will earn commission on an additional product with minimal extra work. Lastly, consistently offering flood insurance can help protect you from E&O liability. Help educate your client on their real flood risks and offer them a product that can protect their home and their family. By offering flood insurance, you are doing the right thing for your customers and for your business. VERTAFORE PL RATING 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 www.vertafore.com/flood. Sources 1 Insurance Information Institute, March 2011 2, 3 FEMA 4 2005 National Inventory of Dams, U.S. Army Corps of Engineers 5 FEMA 6 FloodSmart.gov July 2013 13 FLOOD INSURANCE 101: WHY YOUR CLIENTS NEED MORE THAN A HOMEOWNERS POLICY
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