State Farm Won’t Add New Flood Policies but Agents Will Still Sell Them

By | June 8, 2010

  • June 8, 2010 at 9:41 am
    djones says:
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    To KentU,

    You said exactly what I was going to say.

    And Americans want the Feds to run Healthcare?

  • June 8, 2010 at 12:37 pm
    Steve Shults says:
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    Why do, we the people, allow the Federal Government to take over everything? The Federal Govnerment should NOT be in the Insurance Business in the first place. The way Congress has allowed the NFIP to be on again off again all year shows why they should get out of private interprise. Let insurance companies run insurance, allow car makers to make cars. If a company cannot run their business, let them go bankrupt, and another company will step in to the market place and fill in the void. This notion that companies are too big to fail goes right back to the main problem, which is, the Government! The Feds need to GET OUT of all private economies, take several steps back, and get back to the business of minimal intrusion into our affairs. Let them provide some regulation, where neccessary, and oversight as needed. When are we going to reign-in the massively overgrown Federal Government?

  • June 8, 2010 at 12:54 pm
    John says:
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    Steve,

    The only problem with your theory is that the two of us and my six year old are the only ones that agree. Americans today are in need of help, just ask them or a politician.

  • June 8, 2010 at 1:13 am
    Nerd of Insurance says:
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    I agree with both Steve and John. Get government out of private business.

    It might be too late though to have flood insurance handled by the private sector. Insured have gotten used to paying the NFIP rates, which I belive are set too low and are possbilty not enough to cover a cat loss like a flood. I beleive that any private business that tried to compete with rates that are set at teh rates that the NFIP is currently set at would go under trying to pay the claims. Their only option would be to set it at the right amount in order to have enough to cover the flood, but clients have gotten used to rates being too low, so it would just reinforce the people that think “Insurance is just a big scam and they are just after my money”.

  • June 8, 2010 at 1:35 am
    Bill says:
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    I thought the NFIP was set up back in the 1960s because no private company was willing to sell flood insurance to those properties in high-risk areas. Is that correct? If it is, are there any private companies now willing to sell policies in areas that are prone to flooding?

  • June 8, 2010 at 1:43 am
    NFIP says:
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    There are very few private companies willing to ins. However if the NFIP got out of the picture and let some of the insurance companies price the risk and add by endorsement I think they would start writing it.

    It might also give pause to all the contractors and city officials that continue to allow huge amounts of building in those ares.

    Rate for risk…..it’s a simple thing.

  • June 8, 2010 at 3:10 am
    Barry E. Seay says:
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    Insurance is one of four methods to manage risk. They are avoidance, reduction, transfer and retention.

    Avoidance is the removal of the potential exposure. An example is homeowner liability claims from dog bites. If you don’t want to be sued from your dog biting someone, then get rid of the dog.

    Reduction is the process to reduce the likelihood of a claim. A homeowner can install a fire sprinkler system, smoke detection system and fire extinquisher in their home to reduce the the probability of a fire loss or reduce the overall claim. In North Carolina a life has never been lost in a home with a fire sprinkler system.

    To transfer the exposure or potential financial loss uses insurance. You should only tranfer those exposures you could not afford to a loss such a disability, death, a home or auto liability claim.

    Retention is retaining the exposure. Ninety percent of American do no have diability insurance. So they are “self insuring” or retain the financial loss should they become disabled.

    Now, insurance must meet several criteria they are as follow:

    – The law of large numbers must apply,
    – The risk must be measurable in terms of financial loss,
    – The loss must create a financial hardship,
    – And the loss must not be catatrophic.

    Insurance companies use statistical analysis and mathmatical modeling to measure the probability of loss. The pricing of an insurance product must take into account marketing cost, projected losses, reserves, operation costs, taxation etc.

    The measuring a financial loss of life, diability, a home or car is easy. But, measuring the cost of environmental cleanup
    is questionalable.

    American waste billions of dollars on duplication of insurance and “junk it” or “feel good” insurance. Insuring the physical damage coverage of an old 1980 Chevy Cavalier is not worth the cost of the insurance. The insured would be better served to retain the exposure, save the insurance premium and buy another used cars should the 1990 Chevy damaged.

    The exposure must not be catatrophic. Floods, earthquake, nuclear exposure, acts of war are catatrophic. These exposures are excluded from most insurance policies. The potential exposures would exceed the company financial capacity to pay losses. The Federal Government has the capacity if it collects the premiums, place them reserves and pay claims.

    As I have preveious warned before the Insurance Journals recent articles, our government expenditures and deficit spending has erroded the financial strength of the United States of America. We have borrowed so much money that taxing the American worker at 100% would not payoff the debt in 40 years. Our national debt is NOT 18 trillion dollars. All liabilities total more than 54 trillion dollars. If there are 300 million legal Americans, every citizen owes $180,000.

    One major California earthquake, one major Mississippi River flood, one Hurricane Katrina or one nuclear disaster could place the USA in the same financial and social mess as Greece.

    It is time for responsible American to wake up!

  • June 8, 2010 at 6:22 am
    KentU says:
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    We can all agree that private carriers should handle all insurance risks. However, the existence of the NFIP has allowed people to build in areas that private carriers consider uninsurable. Developers buy the land cheap then, use their money and influence to make the NFIP insure it and make it marketable. NFIP needs to declare the worse flood zones as ‘not rebuildable’. That is, the next time the building is destroyed the insured is paid for the loss and not allowed to rebuild unless they make the risk acceptable – i.e. bring in land fill and raise the elevation of the area. Also strengthen building codes and not allow to rebuild unless new codes are meant. These same ideas should apply to windstorm associations (hurricane policies) managed by state governments.

    I don’t blame SF as the NFIP situation is unacceptable.

  • June 9, 2010 at 2:37 am
    . says:
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    You are correct, the only reason the federal government is in the flood insurance business is because carriers in the 1960’s exited.

    This is another example of the kind of welfare people should really be railing against, corporate welfare. Somehow, people object to individuals benefitting from government involvement, but when corporations do it, somehow its okay.

    And before we run the economy off the rails by demanding austerity, let’s remember that forcing the economy back into the tank by removing what’s supporting it coming out of the Great Recession would be counterproductive, and add much more to the debt.

    Getting things back on track is a very delicate process, and stomping your feet and shouting “deficits deficits” like a child throwing a tantrum is not helpful. We were very lucky that we (barely) escaped another Great Depression, which would have been caused not by government, but by those greed-heads on Wall Street.

  • June 9, 2010 at 3:27 am
    Steve Shults says:
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    In response to the only comment not signed- you simply have it wrong. Your last sentence blames the Recession on the “Wall Street Greed-Heads” as you put it. I will submit to you that they had their part to play, but they were not entirely responsible. Just as the other posts (that were signed) point out, the Government is the one causing the rift in the NFIP, not insurance companies. Much in the same way, the Federal Governemnt began dictating to mortgage companies, that they were going to loan money, even when folks could not afford the payments. And we all know the problems that existed in Federally run Freddie Mae & Freddie Mac mortgage companies.
    Plain and simple, the Federal Government needs to get out of private enterprise, STOP the corporate bailouts and let the economy seek its own level by market forces. The Government can provide it’s neccessary role to make sure there is no discrimination in business and that applicable laws of fairness are adhered to.

  • June 9, 2010 at 4:46 am
    Nerd of Insurance says:
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    Well, one thing that I have to say about the whole sub-prime crisis.

    Regardless if the banks were or were not forced to make the loans (I saw the lawsuit that 8 attornys brought against…Citibank I think it was for not giving out loans to some people looking to borrow money for a home, on the premis that Citibank didn’t loan it out because of the color of there skin, but I digress.)

    Regardless if the banks were or were not forced to give out those high risk loans, there wouldn’t be a problem if the people that knew damn well that they couldn’t afford it didn’t take out the loans. If they didn’t borrow money in the first place, they wouldn’t have defaulted on the loan, and thus the banks wouldn’t have needed TARP. Funny how the American people are quick to blame either the government or big business, but very rarely will blame themselves.

  • June 15, 2010 at 1:24 am
    Kent Underwood says:
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    I had an earlier comment about how real estate developers use the NFIP to make their property marketable. In all due respect, I felt attention should be brought to property owners who did not build in a flood zone but, over-development in their community has caused their property to be reclassified as in a flood zone. The huge increases of runoff water caused by over-development is also attributed real estate developers influence over a local government. The NFIP should require local governments to get the OK of the Corps of Engineers before allowing bare land to be covered by concrete.

    I’ve had a number of my customers build in non-flood zone areas but, within the last ten years they have been moved into a zone X and now a zone A. These changes were due to increasing runoff water problems in their community. Considering the administrative problems at the NFIP perhaps this action from State Farm is a wakeup call for Congress and the NFIP to get their act together.

  • June 15, 2010 at 6:52 am
    Back to School, Kent says:
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    No such thing as a “non-flood zone” and you don’t move to an X zone, you’re already in it. Moving from an X to an A is a possibility, however.

  • June 16, 2010 at 11:33 am
    KentU says:
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    No need to go back to school but, I could have used better wording. I’ve had many customers buy or build a home in a zone X (basically next or close to a 100 year flood plain. In a couple of years the Corps of Engineers reclassifies them into a zone C (still preferred rates for WYO). Many are now being told the Corps of Engineers has re-evaluated and reclassified them again into one of the A zones. This reclassification is indirectly caused by real estate development at higher elevations in their community. What was cotton fields and cattle pastures has been covered with concrete. It has caused a water runoff problem to people that thought they were being responsible citizens by not building in flood zones. Most of these runoff problems could have been avoided had the local government required developers to build in a manner that could have contained and/or slowed down the flow of runoff water. Small towns probably don’t have the expertise to recognize the problem until it is too late. This is where the Corps of Engineers could be a great assistance.

    I wonder how State Farm is going to handle situations where their home policy customers are being told their homes have been reclassified from a zone X to an A zone.

  • June 16, 2010 at 4:01 am
    Scott M says:
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    Actually there are 2 types;

    1) Zone D: undetermined risk
    2) Non Participating Communities: where there a no flood zone determinations because there are no FIRMs, etc. They are “non-flood zones” where you can’t buy flood insurance from the NFIP/WYO.

  • June 16, 2010 at 4:55 am
    KentU says:
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    Hi Scott,
    I guess I am not being clear enough. State Farm has been participating in the WYO program. As you stated the two zones you mentioned are not in the WYO program. My point is that people build or buy in a zone X, B or C thinking they are fairly safe. As a Corp of Engineer representative explained, that these zones are not in a 100 year flood zone but, immediately adjacent to one. The problem exists that development in these zones and in elevations above them are reclassifying them into A zones. As such, it is difficult to tell these people they never should have built there to start with. My question is: Will State Farm offer a WYO policy to their home policy customers if their property gets reclassified from a zone X,B,C or D to one of the A zones?

  • June 16, 2010 at 5:20 am
    Steve Shults says:
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    In response to KentU’s question: “Will State Farm offer a WYO policy to their home policy customers if their property gets reclassified from a zone X,B,C or D to one of the A zones?”…
    {Should be able to write a Flood Policy in any zone as long as the community is a participating community.}

  • June 17, 2010 at 11:14 am
    Scott M says:
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    From what I see, State Farm is not going to issue any new flood policies period. They are also not staying on exising policies; they are non-renewing them when they expire. Agents will have to find a new WYO carrier or go to the NFIP direct program. So insureds will have a State Farm homeowners policy and a “Compny XYZ” or “NFIP Direct” flood policy. I don’t knwo how you go “direct” because here in FL it seems every home carrier has a WYO flood policy. The few I have “direct” are due to being in the Repetative Loss program and are a hassle since you are dealing with govt workers not busines people.

  • June 17, 2010 at 11:17 am
    KentU says:
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    Steve, I am copying a portion of the article which relates to my previous comments so you will understand my interest. “State Farm plans to change its participation in the NFIP beginning Oct. 1, 2010. The company won’t write new flood insurance policies but it will still service those policies issued or renewed under the current arrangement. Until April 2012, State Farm Fire will continue to handle claims occurring before the policy transferred, according to information provided by the company”

    This is telling me that SF won’t be offering WYO to their existing home policy customers if their property is reclassified into an A zone. These people will be shopping elsewhere and open the doors for other agents to get their insurance policies. Despite the problems with NFIP, SF should not expect their customers to take only their flood risk to another carrier.

  • June 17, 2010 at 11:21 am
    KentU says:
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    Scott, you are correct about writting direct. I remember before the WYO program. Working with the NFIP was an ordeal. Those people didn’t care about getting things done and meeting deadlines. There is no reason for me to think the NFIP has improved. I just glad I have WYO carriers.

  • June 17, 2010 at 12:13 pm
    Steve Shults says:
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    KentU: You are correct, in that, by forcing their current insured’s to shop to another company for a Flood policy, it will most certainly open the door up for those same customers to do ‘a little more’ shopping.

  • June 23, 2010 at 9:42 am
    Ed Rossino says:
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    During my research related to this recent turn of events I discovered that insurance companies like State Farm typically receive 1/3 of the premium and a % of any inccurred claim. If this true I assume it was justified since SF resources were handling the admin task associated with premiums, policies, and claims. If NFIP will now handle this then what is the value proposistion of having SF involved at all ? Are they still getting a cut of the pie while delivering less service ? Seems so.



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