Insurance Academy

Want Flood? Let the Market Make it Happen.

By Patrick Wraight | May 9, 2018

I spent a day last week in a conference that was focused on some specific risks that make up a property insurance gap nationwide. The morning was focused on one of my favorite soap boxes, flood. You guessed it. It’s time to mount my soap box again and raise the call for flood insurance on homeowners’ and commercial property policies.

I’m sure that you’ve heard some of my arguments already, but just in case you haven’t, I recommend that you take a moment and review these past blog posts.

Flood Insurance in the Standard Market Part 1

Flood Insurance in the Standard Market Part 2

A particular quote from last week sticks in my mind and is the genesis of today’s post. A panelist with a background in meteorology had this to say, “I had six years of training in weather and oceanography and have no training in risk communication.” Did you get that? All that training, and no one talked about how do we communicate about risk? He made the point that when we watch the weather, we see terms like 20% chance of rain, but that 20% chance in Jacksonville doesn’t mean exactly the same thing as a 20% chance in Phoenix.

That gave me an idea about how the people on the front lines of insurance and risk get the conversation moving in a meaningful way toward more people getting covered for the peril of flood.

First off, let’s establish why this is so important.

According to a 2017 NAIC flood risk study, “Typically in the U.S., half of the flood losses occur outside the designated higher risk areas, of which 1% was insured for flood, meaning enormous amounts of property subject to flood risk are uninsured.” This means that the 50-year old paradigm is wrong. Yes, those areas that are identified as higher risk are at a higher risk for flooding than other areas. However, the rest of the world is still at risk for flooding.

Since you asked, yes, I carry flood insurance and plan to unless I get the opportunity to move to somewhere on the side of Mount McKinley. Since my wife and I are opposed to that level of cold, we’ll stay in the lowlands of Florida. Here are a few ways that I think that the insurance front line should take the lead on communicating the need for providing coverage for flood on property policies.

Don’t let customers take insurance advice from their real estate agent, mortgage lender, or their best friend.

The real estate agent’s job is to represent someone in the buying and selling of a house. That’s about it. They know real estate. They know cost/square foot. They know comparable sales in the area. They know whether it’s a seller’s market or a buyer’s market. (In case you’re wondering, it’s a total seller’s market here, and that’ frustrating.) We pay them to know real estate. As a part of that, I would expect for my agent to know whether a particular property has issues with water. I may even be able expect the agent to know whether a location is in or out of a special flood hazard zone, since many areas require that you list flood insurance “requirements” on a listing.

The mortgage lender’s job is to sell you a mortgage. They want to qualify the buyer to buy a house. They also want to remain compliant with the pile of regulatory requirements that the federal government places on them. One of those requirements is to verify if the house is in a special flood hazard area according to the current FEMA flood maps. If the answer is yes, they ask you to get flood insurance. If the answer is no, they say that you don’t need flood insurance. That’s the only guideline that they go by. They are not analyzing the risk of flooding. They are looking at an online tool that tells them if a house is in our out. That’s all there is to it. They are checking a box, not looking at the risk. Remember, that’s not their job. They want to legally give someone a mortgage and that’s part of it.

Everyone has that friend that thinks he is an expert in everything and has an opinion on everything. Get him out of your customer’s ear. He doesn’t know what he thinks he does, but he’s going to say it loud and in the end be loud wrong about flood insurance. They use phrases like, “my brother bought flood and it didn’t cover anything”, “my buddy didn’t buy flood and he’s fine”, or (my favorite) “it’s never flooded here before”.

In the end, if you’re the insurance agent, you are the one who needs to be in the ear of your customer, letting them know what their risk is. You know that the risk is there. You’ve seen the data on flooding. You know that being in a 100-year flood zone doesn’t mean that it floods only once every 100 years. You know that means that every year there is a 1% chance of that location flooding. You can translate it this way. If a location is in a 100-year flood zone, there’s about a 25% chance that there will be flooding during the life of a 30-year mortgage. You know the truth about what is covered. You have access to markets where you can get coverage for a reasonable price.

Don’t let carriers tell you that they just don’t cover it.

I’ve worked mostly on the carrier side of the house, so I have a carrier perspective many times. Here’s a place where carriers can be wrong and where you can make a difference. We all know that many insurance carriers will lag behind the market need because they want to see what’s going on, what other carriers are doing, and how the market is responding. I say, make the carrier respond to what you know about the market.

You are the one who is educating your customers about flood coverage. You are the one who is helping your customers to see the need for flood coverage. You are the one who can tell your carrier contacts that you need markets to place flood. A smart carrier will take the feedback from its agents and begin the process of developing a product to meet the market’s needs. How do you think a carrier will respond if you tell them that you need flood coverage bad enough to begin to shop your book of business to other carriers that will offer the coverage and will provide good pricing for writing the homeowners’ policy and a flood policy, or even better, a homeowners’ policy with an optional flood endorsement?

I thought you wanted everyone covered. This doesn’t sound like everyone.

Good catch. I’m for everyone having flood coverage on their policies and I think this is a process that will work in that direction.

You have to understand that some say that this is a legislative issue. They say that states, or the federal government, should mandate flood coverage. While that is a solution, it’s a solution that I’m opposed to. I would rather that we force the market to respond. We have all seen how the market responds when someone does something new. They wait and watch for signs of success. Once they see that the water is fine and that the gators are in another part of the lake, they’ll jump in, too.

The way I see it, the more customers that we educate about their flood risk, the more customers will look into flood coverage for their homes and businesses (did you know that business owners also buy homeowners’ policies? Oddly enough, they live somewhere, too. So if you focus on homeowners’ policies, eventually, you’ll start to see the commercial policies buy in, too.)

The more customers that are asking for coverage, the more companies will start to respond. We’ve already seen that in Florida. There are more carriers writing private flood here and the state has made it easier for carriers to get into it. The more carriers that write private flood, the more other carriers will look into it. The more players there are, the more the risk spreads out.

In the end, carriers will have to evolve past a flood policy to a flood endorsement. Eventually, if the market will just make it happen, the flood endorsement becomes a policy enhancement, which becomes a part of every policy that one carrier sells. Over time that becomes the standard and this argument is a memory (along with NFIP.)

How much time will it take? That depends on how much we want to make the change.

About Patrick Wraight

Patrick Wraight, CIC, CRM, AU, is director of Insurance Journal's Academy of Insurance. He can be reached at

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