Author: John Putnam

As an agent approaching my fiftieth anniversary in the insurance industry, I am continually amazed at the increasing frequency and severity of catastrophic floods, the wide geography of where and how floods occur, and how few people have any protection for this peril.

My amazement and education started with the post-wildfire recovery period in my hometown of Colorado Springs, CO, where flash flooding commenced within a month of the Waldo Canyon Fire. (Incidentally, our floods had similar causes as the recent Montecito floods / mudflows but their impact was far less because we did not have the same volume or duration of rain to trigger our floods.) Because of my experiences as the insurance consultant to the Colorado Springs Together, LLC recovery team, I discovered that my traditional approach to recommending flood insurance, i.e consulting FEMA flood maps, needed to undergo change. In addition, I have sought ways to start the dialogue with my fellow insurance agents, industry colleagues and consumers on re-thinking their long-held beliefs about the flood peril and the need for protection. In this brief article and my upcoming February 7, 2018, IIABA webinar “Re-Learning Flood: Old Myths and New Realities," I want to start a dialogue with you on this emerging issue that faces most Americans - regardless of where you live.

Floods occur virtually everywhere in our country, but each flood has unique characteristics. Below are examples of the wide continuum of floods that can and do occur:

• Hurricanes create the most dramatic flooding events. Consider the images of Hurricanes Andrew, Katrina, Ike, Harvey, Irma and Maria that we have all seen. These catastrophic events are widespread, causing billions in damage.
• Excessive rain events also cause devastating floods. Although not necessarily as widespread as hurricanes, the local effect is just as devastating. Consider recently events in California, Colorado, Louisiana, Missouri, South Carolina and Vermont in just the past five years.
• Flash floods may be the most terrifying events. Montecito's recent floods certainly show how quickly, deadly and destructive these floods can be. Flash floods are more likely in drier areas of the U.S. but their outcomes cause significant property damage - and often death.
• Localized floods can occur when storm sewers backup or other isolated flooding events occur.
  
  What is the common denominator? Insureds are virtually unprotected from the effects and the costs associated with these events because most standard homeowners and business property insurance policies exclude damage caused by flood. Insureds need to purchase a separate National Flood Insurance Program (NFIP) policy, an excess & surplus (E&S) lines policy, a standard stand-alone policy or a flood endorsement which is most often a very difficult sales conversation. In most of the above examples, there are a daunting number of uncovered entities outside the FEMA mapped special hazard flood zones that flooded. That's why a “safe" location is not safe.
  
  As experienced by most agents, there is a very limited flood insurance marketplace. The insurer of last resort is NFIP, which was technically $25B in debt prior to last year's hurricanes and before Congress forgave approximately $15B of that debt. As this mechanism is continually under pressure from Congress to develop a revenue stream that pays all claims (a difficult political challenge as we have seen in past five years), it is likely that this insurance mechanism is going to require continual rate increases in the foreseeable future. The NFIP policy already has reduced coverages and rates that many of our customers consider excessive, so there is little incentive for them to voluntarily purchase this insurance. In the 2012 NFIP reauthorization bill, there was some encouragement for the further development of a private insurance market.
  
  While there has been some development in the flood insurance marketplace in the past five years, it is primarily limited to the E&S marketplace to date. However, this is changing quickly. Over the past two years, Verisk / Insurance Services Office has undertaken the development of personal and commercial lines standalone flood policy forms and rates for its licensees. The Commercial Flood Policy program was filed with most states in 2017 and will become effective later in 2018. ISO had just started to file the Personal Lines Flood Policy in late 2017 and will continue for most other states this year. Stay tuned, as these products should change the way you think about and offer flood insurance in the future. Experts predict there is an untapped market for flood coverage which may represent as much as $40B in additional premiums.
  
  As much as the flood has been a challenge in the past, it may now provide a huge opportunity for your agency and your customers – but only if you commit to re-learn, re-engage and renew your role as your customers trusted choice for purchasing the best insurance protection.
   
  A small investment of your time to learn more about this new opportunity should pay dividends to you and prevent the flood protection gaps that exist currently. Wouldn't it be great to watch the insurance mechanism work in the post flooding catastrophic events like it has for fires, hail and wind catastrophes?
  
  I look forward to sharing with you my journey on re-learning and re-engaging on this critical topic in the upcoming IIABA webinar as well as moving forward together as the new world of private flood insurance evolves.