Flood Insurance: Addressing this common and expensive natural disaster
A decade ago, Hurricane Katrina—and a couple of close-following but less powerful storms—brought devastation to the Gulf Coast. The events spiked consumer interest in flood insurance. A few years ago, when Superstorm Sandy slammed New York and neighboring states, it had the same effect.
According to Westfield Services Leader Brian Bowerman, CPCU, this uptick is quite common after a major flooding event. And it happened again recently. “Flood quoting activity jumped significantly this past fall after Hurricanes Harvey, Irma and Maria,” he says.
But what goes up must come down. “Since the first of the year,” Bowerman adds, “activity has resumed to pre-storm levels, as other news stories have taken center stage.” Westfield Services is part of Ohio-based Westfield Insurance and includes Westfield Flood, a Write Your Own carrier written through the National Flood Insurance Program (NFIP).
Market trends and issues
According to Angelyn Zeringue, CPA, president of SouthGroup Insurance-Gulf Coast in Bay St. Louis, Mississippi, flood insurance protection is one of the biggest challenges in her coastal area. “Many changes in the National Flood Insurance Program—more stringent requirements and significantly higher rates—have put tremendous strain on consumers,” she explains.
“The additional cost has actually made some homes almost unaffordable,” Zeringue says. “We look forward to having the U.S. Congress address the issues and approve a multi-year reauthorization that will ensure affordability, improve the flood mapping process, encourage more mitigation and participation, and improve the claims process.
“We always let our clients know that anywhere it rains, it can flood. Many areas that never flooded before have started flooding.”
—Angelyn Zeringue, CPA
SouthGroup Insurance-Gulf Coast
“If reforms are not implemented, very few consumers will continue to participate in the NFIP,” Zeringue adds. “An encouraging development is the entrance of several private flood insurance markets that offer better coverages that are not currently provided by the NFIP, such as replacement cost and loss of use.”
Bowerman points out that most flood insurance in the United States is written by the National Flood Insurance Program, which is managed by the Federal Emergency Management Agency (FEMA). “FEMA flood leadership has been working hard to improve customer experience over the past couple of years, especially when it comes to claims service,” he notes.
FEMA CX actions
In an Accenture report, FEMA Chief Technology Officer Ted Okada shared how FEMA is marrying customer feedback with data analytics and cloud-based services to improve customer experience (CX) for disaster victims and first responders. “In our mission statement,” he said, “we are to support citizens and first responders, state and local government, but first and foremost, survivors of disasters. When I think about customers, I think of those survivors who are in the disaster zone and how do I meet their needs best?
“Ultimately, we want happy survivors,” Okada added. “We want to ensure that these survivors are not in harm’s way again … and that communities and states can understand their risk. Those things are the ultimate metrics—where we can reduce loss of life and loss of property.”
He cited a mobile app feature called Disaster Reporter that lets citizens take photos of hazards and upload them, and then they are shared by FEMA. “We want everybody in the nation to use the FEMA app,” Okada explains. “The experience that really matters is that of the disaster survivors themselves.”
The purpose of the FEMA Disaster Reporter, he notes, is to crowdsource and share disaster-related information for events occurring within the United States, allowing citizens, first responders, emergency managers, community response and recovery teams, and others to view and contribute information on a publicly accessible map.
In his keynote at the most recent National Flood Conference, held last May, NFIP Chief Operating Officer Roy Wright also addressed the agency’s customer experience focus. “Last year when we met here at this conference, I told you about the changes we were making to transform the NFIP customer experience and improve our oversight and engagement with the Write Your Own companies.”
He explains that such changes were based on lessons learned from Hurricane Sandy and the agency’s in-depth examination of the NFIP customer experience. Wright, who also carries the title of FEMA Deputy Associate Administrator for Insurance and Mitigation, shared a couple of changes related to case management and disposition that he believes are making the greatest difference.
“At this time last year, we had just introduced a new, redesigned process to make sure customer complaints were heard and that our response to their concerns was transparent and understandable,” he explained. “Over the last year, we have built a new appeals process with greater transparency, access, and accountability. But what does that mean?”
According to Wright, some of the changes are relatively simple, “But they can make a big difference for our customers.” For example, NFIP now has dedicated insurance examiners in its appeals unit. “No longer are appeals add-on work,” Wright explained. “The appeals workload is their principal job.”
He added, “To speed up and simplify the process for our customers, we now accept appeals packages via email instead of snail mail—where Department of Homeland Security package screenings can delay delivery by weeks. The cases are actually managed, and that’s not just throughput tracking. This means calling and emailing our customer—personally managing their case until they agree that it’s resolved.”
“FEMA has great resources to access. Also, choose a Write Your Own flood carrier that offers a high level of support for this difficult line of business.”
—Brian Bowerman, CPCU
Westfield Services Leader
Wright said, “Our reviews are designed to reach the earliest possible resolution, and we encourage carriers to resolve issues in favor of policyholders based on our input whenever possible. And regardless of whether we uphold or overturn the Write Your Own company’s denial, we explain every detail of our decision to the policyholder—in writing.”
He pointed out that the appeals process is not finished when the agency delivers the appeal decision to the customer. “Instead,” he said, “the process concludes when appeals data are collected and distributed to key stakeholders to help improve program delivery.”
Even as customer experience work progresses, private flood markets are emerging in a variety of areas. “Most wholesale brokers have access to specialty markets now offering private flood,” Bowerman explains. “This market is in the very early stages of development, so everyone is testing, watching and learning.” He cites EZ Flood and NCIP as examples.
Bowerman stresses the importance of ensuring adequate flood coverage. “Flooding is the most common and expensive kind of natural disaster in our country,” he explains. “According to FEMA data, the damage from just one inch of water can be more than $20,000.”
Agents can play an important role in helping neighbors get appropriate protection. “We always let our clients know that anywhere it rains, it can flood,” Zeringue explains. “Many areas that never flooded before have started flooding, due to new subdivisions or commercial developments that redirect the water from where it has gone before.
“The cost of repairs after a flood is tremendous,” she adds, “so we stress as much as possible that having flood insurance is a valuable risk management strategy for anyone’s family or business.”
“We strive to tell stories,” adds Claudia McClain, founder of McClain Insurance Services in Everett, Washington. “A favorite involves one of our clients who was so incensed that her lender required flood insurance on her newly purchased home that she made numerous calls and sent multiple letters to her Congressman complaining about this mandatory requirement.”
That was in the fall. “By spring of the following year,” McClain notes, “the woman experienced a $60,000 flood claim. Ten years later, she still has her flood policy and she’s never questioned the rates—which are significant—and she never questions the need for this protection.”
McClain’s agency also uses links to third-party reports, “like a recent story about a neighborhood right near our office—not anywhere near the flood plain—that was flooded when a beaver dam was damaged by trees falling in a windstorm.”
The non-flood-plain issue goes well beyond beaver dam breaks. “There are cities in our county—and probably in most counties across the country—that have very poor municipal infrastructures,” McClain notes. “These can ultimately lead to overflowing storm drains and flooding in non-flood zone areas. We ask our clients how they plan to repair their home in the event they experience this kind of loss.
“Often, it’s a matter of getting them to think about their potential financial loss if they choose not to insure the exposure,” she adds. “For example, we remind them that they’re still responsible for paying off that 30-year home mortgage and paying for housing elsewhere if their home is significantly damaged by a flood.
“Some will raise the objection that they’ll just get a FEMA loan if necessary,” McClain says. “It’s important to share with these folks that there is no guarantee that FEMA will be there to help them rebuild and in a timely manner, citing the delays experienced after Hurricane Katrina or more recently in Puerto Rico.”
Bowerman says that up to 20% of all NFIP flood claims happen to these properties that are outside of a high-risk flood zone. “Flooding can happen anywhere,” he adds, “and everyone lives in a floodable area. It’s just a question of whether it’s a Special Flood Hazard Area (SFHA), which people commonly refer to as a flood zone. It’s in these areas where flood insurance is mandated by mortgage lenders.
“So even if you’re outside an SFHA flood zone with mandatory purchase requirements, you still have flood risk,” he notes. “For properties in low-risk zones, the National Flood Insurance Program offers some inexpensive policies, called Preferred Risk Policies or PRPs.”
He points out that flood risk can be difficult to comprehend. “Even a high-risk SFHA flood zone can have just a 1% chance of flooding in a given year,” Bowerman explains. “So when people choose not to buy because they ‘have lived here 30 years and never had a flood,’ that choice seems logical. But it isn’t.”
Worse than that, he adds, “Some real estate professionals—and even some insurance agents—believe that customers don’t need flood insurance unless they ‘live in a floodplain’ and a lender requires it. Unfortunately, this thinking leads to many people being uninsured for the most common and costly natural disaster.”
Bowerman notes that most of the flood claims filed in Houston due to Hurricane Harvey involved properties in the low-risk flood zone. “Most of these insureds didn’t have flood insurance coverage as a result,” he adds.
Agent, broker response
Zeringue says her agency has a formal process for addressing flood insurance. “We always recommend flood insurance to our clients,” she explains, “and we have them sign a declination if they decide not to take the coverage. In our real world of more extreme weather, you can’t afford not to have flood insurance.”
Carrying appropriate flood coverage pays off in a time of a catastrophe. “Following Hurricane Katrina, we had hundreds of clients who benefited when their homes were lost in the flooding,” Zeringue recalls. “Because they had adequate insurance coverage, they were able to rebuild their lives.”
She says agents need to remember that the regular flood program provides coverage for up to $250,000 on the structure and $100,000 on contents. “There also is up to $30,000 in additional coverage in the NFIP policy under ‘Increased Cost of Compliance (ICC) Coverage’ to assist with debris removal and to perform flood mitigation as clients rebuild,” Zeringue adds. “Make sure clients know that.”
When customers are tempted to decline coverage, remind them of alternatives. “We’ve had clients who declined flood coverage and lost their homes to flooding,” she notes. “They had to rely on assistance from FEMA. The government assistance was only around $6,000—significantly less than what was needed to rebuild.”
There’s another good reason to push for coverage. “If an agent does not offer flood coverage or states that flood coverage is not needed, that is an almost certain way to have an E&O claim made against them,” Zeringue observes. “After every major flooding event, agents are sued for not recommending the coverage.”
Bowerman suggests tapping available tools to help drive the sale. “FEMA has great resources to access,” he explains. “Also, choose a Write Your Own flood carrier that offers a high level of support for this difficult line of business. Our company has full-time flood experts on staff to help with quoting and troubleshooting difficult flood situations. Most agents don’t write a lot of flood, so we make the resources available to help.”
By Dave Willis, CPIA