Burand’s Agency E&O Blog: Tip #29

Flood Insurance. Who Ever Said Mortgage Companies Know Everything About Flood Insurance?

In agency after agency I visit, flood insurance is usually only offered to people if their mortgage company requires it. De facto, this means the agency is accepting mortgage companies as all knowing when it comes to who needs flood insurance. How silly is this?

First, mortgage companies could not care less about insurance to value and flood policies likely should be written based on replacement cost, not a mortgage balance.

Second, mortgage companies generally only require flood insurance when a building is within a certain Special Flood Hazard Area. However, historically approximately one-third of all floods happen in B, C or X areas and these are areas where mortgage companies do not typically require flood insurance be purchased. So if an agency relies on mortgage companies to determine who should be offered flood insurance and for how much, the agency will possibly be wrong at least 30 percent to 50 percent of the time.

Why make life harder than it has to be? Just offer flood (including building contents and excess flood) to everyone, each year. It is a great opportunity to limit your E&O exposure and simultaneously, touch each client in an important way.

(With special assistance from David Thompson and Mike Edwards)