May 27, 2016
A ‘Perfect Storm’ of Opportunity (Part 3)
by John Dickson
While regulatory changes to the NFIP may make it difficult for agents to sell flood insurance, emerging options can offer relief.
Change isn’t always easy. If you’re an insurance agent or Write Your Own (WYO) dealing with the April 1, 2016, regulatory changes to the National Flood Insurance Program (NFIP), you know this all too well. As the Federal Emergency Management Agency (FEMA) continues to phase out various rate subsidies, agents are dealing with increasing policyholder concerns around rate increases and affordability.
These regulatory changes inject new complexities into an already complex program. For agents trying to serve their customers in this space, it’s challenging to stay ahead of the NFIP changes around eligibility, pricing and flood zone determination — all while making time to absorb periodic, substantive modifications. Furthermore, increased regulatory scrutiny creates greater demands on agents because producers must invest additional time to ensure compliance. These dynamics generate new frictional costs that leave many agents feeling like there’s less return for their efforts.
Homeowners have also felt the impact of the rapidly evolving flood insurance environment by means of increased costs and added requirements. Those interested in buying flood insurance or in maintaining existing flood insurance are faced with shifting price points and new steps in the application process. Just recently, pockets of homeowners in South Carolina were newly mapped into mandatory purchase areas, forcing some mortgaged properties to purchase flood insurance for the first time. Such changes can impose significant burdens on homeowners, particularly those on fixed incomes.
See also: Why Flood Is the New Fire (Insurance)
Strategies for Managing Through Change
While regulatory changes to the NFIP may make it difficult for agents to sell flood insurance, emerging options can offer relief. Previously, if a prospective consumer rejected flood insurance because of price, agents often did not have an alternative. Today, this is not the case.
Keith Brown, the president and CEO of Aon National Flood Services, said, “The NFIP offers a widespread product, and that has significant application in today’s environment. … However, agents will find that there are some customers who may not be an appropriate fit for the NFIP. Now, agents can present options for policyholders who struggle with affordability issues if charged full-risk rate premiums. These agents are able to present coverage options more tailored to individual homeowner needs in terms of lifestyle, financial planning and risk exposure.”
There are some strategies for flood risks that agents can adopt to help manage change through an evolving regulatory environment and shifting consumer appetite. First, it is important that agents are mindful of map revisions and the fluidity of the geographic risk associated with flood. Mapping changes drive pricing and surcharges applied to individual risks. For instance, a customer who wasn’t required to have flood insurance yesterday may be required to have it today.
Innovations and opportunities in this business do not follow a set schedule, and agents seeking means of differentiation must be vigilant. With the proper education and tools, flood insurance offers a means for agents to help customers better protect themselves and their investments. Talk to your WYO; familiarize yourself with product choices your customers may find attractive if they’re struggling with the impact of regulatory changes.
When looking at the newly mapped areas as defined by the NFIP, there is a distinct line that defines the area where homeowners must have flood insurance as a condition of having a federally backed mortgage. On the other side of that line, homeowners are not required to have flood insurance to mortgage their home; however, floods do not recognize these lines. In many cases, the homes sitting on the non-insurance-required flood zone lines have just as much of a chance of falling victim to a flood catastrophe. So, as an agent, understanding flood maps and knowing how properties may move in and out of different flood zones is invaluable in educating your customers and helping them determine what insurance they may or may not need.
There’s no doubt that, in today’s ever-changing environment, a long-term strategy is difficult for agents. A basic understanding of the requirements surrounding floods will get you by. But if you want to have the opportunity to be more successful and be viewed as a valued business adviser and resource for homeowners in your community, you have to be able to look beyond the basics of flood.
By taking on a more holistic view of flood, recognizing how floods can affect communities and having the ability to articulate all flood options (including private solutions), you can set yourself apart from others adrift in a sea of change.
For an overview on the NFIP changes, check out a handy visual guide NFS has put together: “Making Sense of NFIP Regulatory Changes.”