"I read your article and agree with you," said one residual-market executive. "Your idea would also improve the financial condition of the NFIP by increasing the number of policyholders. As it is, flood insurance is a textbook example of adverse selection. The only folks who buy it now are those who know they'll someday have a loss."

An adjuster said he thought I had a "great idea" which, if implemented, might mean that "Congress would not have to approve a bailout package every time one of these 'superstorms' occur."

A county government risk manager wrote that "the time has come for a process like you have described. It seems like our country still does not get it—we want taxes lowered, but when people take known risks and incur loss, they ask where is the federal government to bail them out?  This happens many times—again and again!"

The county risk manager added that "free lunches just don't exist. If you want to live in a beautiful part of the country (most of the time), which happens to have high risk, then the likelihood of disaster must be factored into the equation by creditors, insurers and the insured. The view from the top of the dormant volcano is great—however…."

An insurance company executive also seconded my motion, noting that "we already have precedent in many states where we have to provide Uninsured/Underinsured Motorist coverage for auto insurance, with opt-out forms." 

However, an agent from Maine—while hailing my suggestion as "a revolutionary idea"—observed that "some careful thought would have to go into crafting the actual language, as mortgage requirements already in place would/should void the option to opt-out." 

This New England producer said my proposal raised many "pluses and minuses from an agent standpoint. But overall we are here to educate and should be ready to explain the consequences of having no flood coverage…Our industry could start a campaign to educate the public prior to the next happening!"

He also suggested adding teeth to my proposal by passing "some legislation to preclude those who have opted-out from collecting state and federal assistance following a flood loss."

One independent agent said that while he agrees with my idea "in principle," he cited "the challenge of dealing with the complicated underwriting process of a standard flood-insurance policy that the federal government issues."

"As an agency we advise clients when we give them a quotation for property to consider flood coverage—that way, if the client desires a quote, we gather the additional underwriting information," noted this independent agent. "Your information must be 100 percent accurate before you offer your client a quotation. Any mistakes can jeopardize the limits and premium."

He added that "with the documentation requirements of post-FIRM construction, the government does not make it easy," referring to the upgrades demanded of structures completed or substantially improved after a community's initial Flood Insurance Rate Map is issued.

Others were skeptical whether my idea would alleviate an agent's E&O exposure, or merely exacerbate it by opening up another can of worms. 

Indeed, one bank agent wondered whether "with a limitless number of coverages and exclusions in personal and commercial insurance policies, would an agent be mandated to explain or have signed acknowledgments for every exclusion?" 

He warned that my idea might end up setting "a precedent that provides a basis for a lawsuit when other future claims are not covered, and signed exclusions are not required." He also doubted whether my suggestion would increase sales of flood insurance, adding ruefully that "clients only want a coverage after an uninsured loss."

An agent from Hawaii was also doubtful, lamenting that while "automatically adding flood coverage…seems like the right thing to do, especially after Superstorm Sandy, it would just bring another exposure to an agent's E&O."

This agent cited potential problems with the limits of flood coverage offered by the federal program, since "under the NFIP, I can secure only $250,000 on the dwelling and $100,000 on contents, with no coverage for loss of use." If a policyholder's dwelling is valued at more than $250,000, the agent noted that the client should at least be advised to consider excess flood coverage—a very expensive and perhaps unaffordable option for many homeowners. 

Meanwhile, he warned, "if we fail to 'convince' these insureds to buy excess flood coverage, we still can be sued for failure to secure the needed coverage, especially when the homeowners section has adequate coverage for other perils." (Unless they seek an opt-out acknowledgment for that declination as well, I would suggest.)

While my idea might "make sense on paper," the Hawaiian agent argued that "flood coverage and hurricane coverage should be written separately from the homeowners [policy] and left for the individuals to decide to purchase or decline it. The buying public should be held accountable rather than laying all blame at the agent's or carrier's feet."

The Aloha State agent concluded that "all of our carriers put a warning on the homeowners' policy declaration page, indicating that hurricane and flood coverage is not included, and to call their agent if they are interested in securing this coverage. Caveat emptor! [Let the buyer beware!]"

A second insurance-company executive said that while my blog was "a good read and offers a good idea, it may run into challenges similar to the current brouhaha over the Patient Protection and Affordable Care Act," which mandates most individuals to certify they have health insurance. "I think you may see that while your suggestion seems practical it may be labeled as just another part of 'The Nanny State,' and politics will kick it to the curb," he executive said.

Last but not least, a third insurance-company executive said while my proposal is "not a bad idea," he offered an alternative, urging the insurance industry to get more actively involved in school curriculums.

"There should be formal classes (perhaps given by volunteer insurance industry professionals) in schools to educate students about the various types of policies and the coverages they include/exclude," this carrier official suggested. "The benefits for doing this are many.  They include educating the up-and-coming generation about insurance, possibly attracting younger people to consider careers in the industry, and helping change the public's perception that the industry is out to gouge the public.  I can't think of many downsides to this plan."

Neither can I. While some individual insurers and independent agents already perform such educational outreach, 'Insurance 101' classes are hardly standard for most school systems. The question I have is whether students will pay attention in class and learn the basics of insurance when a number of studies indicate that despite their teachers' best efforts, many don't seem to grasp the basics about our own system of government!

Taking a cue from our agent reader in Hawaii, I say, 'Mahalo'—thank you—for responding in such numbers and such depth to my suggestion. If anyone else wants to contribute to this debate, you can comment below this blog, or e-mail me directly at [email protected].