As the mountain snows melt, spring rains begin to fall and hurricane season rapidly approaches, it is important to remember that flood insurance typically is not a covered peril in a traditional homeowners, dwelling, condo or commercial property policy. As the property market continues to harden in 2020, it is more important than ever to educate clients about their true risk of flooding and ensure you are offering adequate coverage options to protect what is probably one of their largest assets.
Flooding is the most common and costly natural disaster in the United States, with 90% of natural disasters in the U.S. involving flooding. This isn’t just coastal flooding, either. In fact, 98% of all U.S. counties were impacted by a flood event in 2018.
Yet, most property owners do not think their building is susceptible to flood. Common stances on flood insurance include, “I’m not in a flood zone;” “My realtor told me I am in a preferred flood area;” or, my favorite, “It hasn’t flooded in this area in years.” Because mortgage mandatory purchase requirements exist ONLY for buildings deemed to be in high-risk flood zones, most property owners assume that if it is not required, then the threat does not exist. This could not be more incorrect. The highest-risk areas have at least a 1% annual chance of flooding. To compare, the average chance of a home fire is 0.33%...nearly three times less likely to occur in any given year! Even many low-to moderate-risk areas see an annual risk greater than that of home fire, with ranges between .2% and 1% in the 500-year flood plain.
Key facts about low-risk flood zones include:
Until recently, the only market through which to purchase traditional flood insurance was FEMA’s National Flood Insurance Program (NFIP). However, after years of program deficits, Congress passed the Biggert-Waters Act of 2012 to encourage private insurance carriers to launch competitive flood insurance solutions and subsequently mandated that mortgage companies accept private options to satisfy their mandatory flood insurance purchase requirements. This created an opportunity for private carriers to enter the market with better coverage and service at a lower price to those interested in purchasing or, in many cases, required to carry, flood insurance.
So, before the 2020 hurricane season blows in, make sure to review with your clients their actual flood risk. Those in high-risk flood zones should be warned that a 1% annual chance is actually very high compared to other perils. Walk through scenarios and explore private alternatives that could save money and improve coverage for your insured’s greatest exposures. The bottom line: today’s market demands a thorough and thoughtful approach to flood coverage. Understanding an insured’s risk and knowing which options to recommend will offer protection when it’s needed most.
The Flood Insurance Agency (TFIA) specializes in the distribution of private flood insurance throughout the United States. For more than 30 years, TFIA has been at the forefront of the flood insurance industry. It provides access to private market flood insurance as an alternative to the National Flood Insurance Program. The private flood insurance program now insures over $4.5 billion of property spread over 25,000 risks and has registered over 3000 independent agencies in 49 states to market the program. Learn more about FloodFlex, TFIA’s innovative commercial flood coverage enhancement.
This article was written by Eric Weber, executive vice president of The Flood Insurance Agency.
1 Floodsmart.gov. https://www.floodsmart.gov/flood-map-zone/about
2 FEMA.gov. Flood fact sheet. https://www.fema.gov/media-library-data/1510759434562-dfb20c9a88200a9b6eae4a8e26443b75/FactSheet_Flooding_Am_I_At_Risk.pdf
3 cnbc.com. Hurricane Harvey damage costs could reach $75 billion, research firm says. https://www.cnbc.com/2017/08/30/hurricane-harvey-damage-costs-could-reach-75-billion-research-firm-says.html
4 NFIP database.
5 iii.org. 2016 Consumer Insurance Survey. https://www.iii.org/sites/default/files/docs/pdf/pulse-wp-020217-final.pd