Understanding private flood insurance options

Although the 2017 hurricane season officially ended on Nov. 1, for many across the United States, the risk of flooding is not over. With heavy rains or snow, lakes, creeks and rivers may flood, causing damage to locations that never expected to have to deal with the problem.

Choosing flood insurance used to be a relatively simple decision. Property owners had two options: no insurance or one-size-fits-all, government-issued insurance through the National Flood Insurance Program (NFIP). Now, there are more choices. Private flood insurance is growing more robust, bringing new and relevant options that were never available before, such as coverage for additional living expenses, enhanced basement coverage and increased limits for various risk classes.

Customized, specialty solutions

For property owners, having more options means there are more ways to protect their modern lifestyles. The NFIP continues to serve a vital need for many Americans, but there are specific exposures the federal program doesn't cover, such as swimming pools, detached structures and finished basements. Additional options are essential for people who want peace of mind knowing their valued property and possessions are protected.

Consumers today want choice. Look at the telecommunications industry, for instance, where cell phones are ubiquitous. Would everyone have a cell phone if there was only a single service plan available from a single provider? Probably not. Now, there are a variety of cell phone plans designed for different users, for example, businesses, families or teenagers. And there are myriad plan configurations to address those needs.

Similarly, having a suite of flood insurance product options enables agents to proactively address their clients' needs by creating customized programs and specialty solutions that were not available until now. For property owners, more choices can also mean more questions.

7 guiding questions

Flood insurance is increasingly complex. Agents must rise to the challenge by simplifying flood insurance and facilitating thoughtful planning to help clients explore their options and make informed choices in protecting their lifestyles. To help you lead the discussion with your clients, NFS Edge has developed the following seven questions as steps through this evaluation process.

1. Does your client need specialized flood insurance coverage?

Consider flood insurance coverage in terms of the specifics of the property and the property owner. Is your client a landlord? Is your client on a fixed income? Is this person holding properties for income-generating purposes? By understanding the needs of your clients you can more effectively use and configure the suite of flood insurance options that are available today.

Private flood insurance enables property owners to supplement the NFIP product, providing coverage that homeowners expect from their homeowners' policies for exposures such as outdoor property, detached structures and basements.

2. Does your client have a finished basement or pool?

The NFIP does not cover personal property in basements, so displaced homeowners or homeowners with built-out basements are responsible for these bills. If a storm surge dumps a ton of sand into your client's pool, is your client prepared to shoulder the costs of the resulting clean-up? Private options can help. For example, NFS Edge offers homeowners the option for $1,000 swimming pool clean-up protection.

3. Does your client's property value exceed $250,000?

The value of custom-built homes continues to increase with replacement costs rising well above $250,000, the current limit on government-issued coverage. Now, owners of residential homes in lower-risk, non-mandatory flood zones have options with higher coverage limits at affordable rates through private flood insurance programs.

4. Would your clients need assistance with additional living expenses if they experience flood damage?

When weighing coverage options remember that the NFIP does not cover additional living expenses. With a private flood policy, your client can opt to add additional living expense coverage. This valuable coverage helps homeowners who have been displaced as a result of a flood by covering the costs of shelter and meals. For instance, some NFS Edge policies offer $5,000 per occurrence in Additional Living Expenses (ALE) along with $500 in food spoilage coverage.

5. Are your client's personal belongings valued at more than $100,000?

Consider your client's property holdings beyond the physical structures they own. If your client is a landlord or holding income-generating properties, they typically don't need contents coverage. However, some clients may need more coverage than the amount available from the NFIP to protect their personal treasures.

6. Would your clients consider an application process that doesn't require submitting photographs or an elevation certificate?

Speed of delivery and streamlined processes of today's private flood insurance options are increasingly attractive to clients. For example, agents can often quote a private flood policy in less than a minute. In addition, some property owners may be able to obtain a quote without an elevation certificate and without providing property photographs.

7. Would your clients like to avoid federal surcharges or reserve fund assessments?

Private products are not subject to federal surcharges or reserve fund assessments, and they may be less expensive to purchase than NFIP flood insurance.

Need for flood coverage increases

With the National Flood Insurance Program Reauthorization debate ongoing and a proposed flood reform bill passed by the House, Congress struggles to make flood insurance affordable and improve claims standards. Discussions continue around the development and delivery of dependable, disciplined, reliable private insurance to help more people protect their financial wellbeing.

As the appetite for flood insurance continues to evolve, agents need to emphasize with property owners three key themes:

The risk of flood is substantial; it is constantly and rapidly changing.
Our communities can't rely on yesterday's flood guidelines and experiences to shape today's risk management decisions.
Property owners must understand they are vulnerable to flood and know what options are available to help them manage this potentially catastrophic exposure.

The statistics are staggering. Only about 6% of the U.S. population is insured for the perils of flood. In the Baton Rouge floods last year, 83% of homes devastated by flood were uninsured. We are seeing similar statistics with respect to Hurricanes Harvey and Irma. This only amplifies our shared responsibility for taking preventative steps to ensure as many people as possible are protected when events of this magnitude happen again.

There's a world of opportunity for agents offering private flood insurance options. Not only is it a way to differentiate your business from others in a highly competitive space, it's also a way to make a difference for your clients by helping them protect what is most important.

John Dickson is president of NFS Edge Insurance Agency, Inc., a subsidiary of Aon National Flood Services (NFS). Dickson can be reached at (888) 888-2169 or [email protected].

Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader

Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:

Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
Educational webcasts, white papers, and ebooks from industry thought leaders
Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor