A new flood coverage suite from Privilege Underwriters Reciprocal Exchange, or PURE, is offering high-value homeowners an alternative flood insurance option.
PURE Flood Solutions works as an extension of the National Flood Insurance Program’s (NFIP) Write Your Own Insurance program, in which PURE issues and services the flood insurance policies, but NFIP covers the losses. Coverage is available for jewelry, art, watercrafts, personal liability, as well as auto and homeowner’s insurance.
Chief Operating Officer Martin Hartley said the company saw a need for a better flood insurance option for the high net worth segment after Hurricane Irene in 2011. Speaking with Insurance Journal, he explained how the coverage works, as well as how the company is working with agents and brokers to educate insureds on their flood insurance exposures.
IJ: Why was developing PURE’s Flood Solutions important?
Hartley: Flood coverage is generally not a peril that is insured under a homeowner’s policy. If you want to buy flood insurance, generally speaking you buy it from the NFIP.
We see a service need there. While the NFIP serves a very important purpose, we think there’s an opportunity to improve the claims service proposition of flood insurance.
This was really crystallized with Irene, a major storm in the Northeast that caused many of our members to suffer losses, some of them both wind related, trees falling on roofs, as well as flood related … In resolving those claims, we would send our claims adjuster out to adjust the wind loss, and the NFIP would send its adjuster to resolve the flood loss; two separate visits, two separate phone numbers, no coordination, and, in some instances, leaving our member with not an ideal service experience.
The idea behind PURE Flood Solutions was to tackle that issue. We will offer NFIP coverage on PURE paper. That means that we’ll be able to offer the same strong NFIP coverage at NFIP prices to our members. The difference will [be] that we will be able to appoint our own adjusters to adjust that loss.
Maybe more importantly, in the event of a storm where you have damage caused by wind and also by flood, that member will experience better claims service with one adjuster visiting and adjusting the loss under both policies. One point of contact, one phone number and better service delivery.
Think about it in two components. The first is that NFIP policy with our exceptional claims service. The second piece is a range of optional endorsements to our homeowner’s policy that both broaden the coverage provided by the NFIP and increase the amount of coverage available.
Let me talk a little bit about that. While the NFIP does a solid job of providing coverage for flood losses, it certainly has some deficiencies in serving high net worth individuals. The most obvious is that the NFIP only provides $250,000 worth of coverage for the home itself, the buildings, and $100,000 worth of coverage for the contents.
Our average home rebuilding cost is just over $2 million, so that is not nearly adequate to cover the exposure our clients have. One of the endorsements we provide under our homeowner’s policy is to provide what we call “excess flood” coverage with limits above the NFIP.
We offer those limits at any coverage amount at the option of the member, up to the limit of the insurance they buy on their homeowner’s policy.
The second obvious shortfall of the NFIP policy is that it’s not very broad. For example, if you’re insuring a second home with an NFIP policy, the policy only covers actual cash value on the home rather than replacement costs. The NFIP will look at what the extent of the loss is, and then apply depreciation and make a settlement based on that lower figure.
We provide an endorsement on our homeowner’s form that broadens that NFIP coverage to pick up the difference between what the NFIP pays and what the true replacement cost is, so the cost to repair or replace that damaged property without depreciation.
There are many examples of shortfalls to the NFIP policy that we would pick up.
IJ: What limits are available?
Hartley: The limits on the NFIP are $250,000 for buildings, and $100,000 of coverage for content. Above that, we provide excess flood, the limits hopefully up to the insured value of the home. Up to the sort of $15 million or $20 million homes that we would insure, we would be happy to provide excess flood insurance.
IJ: Who is eligible for this coverage?
Hartley: We’re only offering this coverage to PURE members who buy a homeowner’s policy from us. To that extent, yes, there’s a limitation that we’re only offering it to our members. But within our membership, it’s available to all.
IJ: The Federal Flood Insurance Program extension act will end premium subsidies for second and vacation homes. How will that affect your program?
Hartley: It’s appropriate for the NFIP to look at ways to avoid subsidies within the book, within what they insure. It certainly doesn’t change our basic philosophy that the NFIP coverage is very valuable. It’s appropriate for people to buy it, and by buying it from us, if you also buy your homeowner’s from us, we can deliver a claims service experience that’s far better. That basic premise doesn’t change. But I think the notion that second homeowners may pay a little more for their flood insurance … we understand that.
IJ: Have you had much of a response?
Hartley: One of the things that our agents worry about is the claims response on an NFIP policy. We distinguish ourselves by delivering an exceptional claims experience to our members. The agents who are representing the interests of high net worth people really rely on us delivering on that promise.
When it comes to NFIP coverage, there has been no company that has focused that same dedication on claims service, specifically focused to owners of high value homes. Our agents are excited, from what we hear, to be able to provide a solution to their clients that is far better than what’s been available previously.