IN 1972, our agency was the first in Galveston County to write astandard flood insurance policy through the National FloodInsurance Program (NFIP). We were also the first agency in theUnited States to write a flood policy through a private carrierwhen the "Write-Your-Own" carrier program began in 1983.

It's not difficult to understand why. Galveston Island is abarrier island, located adjacent to the Gulf of Mexico. TheGalveston Hurricane of 1900, the subject of the recent best-sellingbook "Isaac's Storm," was the deadliest natural disaster in UnitedStates history, killing nearly 8,000 people and destroyingapproximately 3,500 homes and businesses. About 80% of the islandis labeled as being at high risk of flood. All residents ofGalveston, not just our agency, are well aware of the devastatingpotential of flooding and the need to protect against it.

Flood insurance, of course, can be important for many risks, notjust those on a barrier island: 30% of all flood losses occur inareas not considered high-risk for the hazard. As I'll explain inthis article, the National Flood Insurance Program can help allagencies understand the risk of flood, educate clients andprospects about the risk and make affordable flood protection avaluable part of the coverage you offer.

The NFIP

The NFIP was created by a 1968 act of Congress. The goal of theprogram is to encourage communities to engage in floodplainmanagement and to provide affordable flood insurance for privateproperty owners. The program is administered by the MitigationDivision of the Federal Emergency Management Agency (FEMA). Whenthe program was created, all policies were issued and handled bythe NFIP. In 1983, it created the "Write-Your-Own" (WYO) program,giving private carriers the ability to issue NFIP policies. FEMAremains responsible for paying losses, and private carriers issuingpolicies earn a fee for each policy they write.

Participation in the program is on a community level. A propertyowner can purchase a standard flood policy only if the property iswithin a member community. To join the program, community mustagree to certain floodplain management measures, such as enactingand enforcing construction ordinances related to base elevation ofnew structures, and other flood mitigation efforts. The NFIPconducts land surveys of member communities and creates floodinsurance rate maps (FIRMs) used to classify different flood"zones" according to risk of flooding. Within a particular floodzone, available insurance limits and premium rates are consistentnationwide.

Marketing flood coverage

We're a 111-year-old insurance agency on a barrier island. Thusour marketing efforts don't really need to be directed atconvincing most prospects of the need for flood insurance. Insteadwe focus on reinforcing our reputation as experts in floodinsurance and maintaining ties with other professionals who haveaccess to prospects.

We've had some response from our ad in the local phone directoryand from our Web site. But we don't have to provide clients withtoo much other information about the risk of flood itself. Whenclients or prospects want to learn more about flooding, we canrefer them to the FEMA and NFIP Web sites, which have an abundanceof material. Agencies can obtain educational materials and supportfrom the NFIP or a private WYO carrier.

Our participation in local insurance associations and oursupport of local businesses are an important part of our efforts tomaintain visibility in the community. We're members of theGalveston Area Chamber of Commerce, and I serve on the Texas FAIRPlan governing committee and on the boards of directors for theIndependent Insurance Agents of Texas and the Texas WindstormInsurance Association. (Like flooding, windstorm is a risk that isespecially high in our area.)

We also educate professionals in other fields about floodinsurance. We hold seminars on flood and windstorm insurance forbankers and real-estate agents, helping them remember our name whenthey're serving their own clients. We provide contractors withflood coverage as part of builders risk policies. Satisfying aconstruction-industry client can lead to business from othercontractors and those who buy the homes and buildings theybuild.

An important part of our "marketing" is done by the NFIP itself.Federal law requires flood insurance for any federally backed loanif a property is within a high-risk flood zone. If you purchase ahouse and obtain a mortgage loan from a private bank or otherlender guaranteed by the FDIC or FSLIC, for instance, you must buyflood insurance. In many instances, we thus don't have to addressthe question of "Do I really need flood insurance?"

This rule doesn't affect everyone, of course. Some affluentclients purchase homes without loans. Others may pay off theirloans, eliminating the flood insurance requirement. If theseclients decline to purchase flood coverage, we require them to signdocumentation indicating that we offered it. We also send themregular reminders of our recommendation that they purchase apolicy.

Covering the flood

Standard flood policies are quite basic in terms of theircovered causes of loss, available limits, and what property is andisn't covered. It's important for both agents and their clients tounderstand the various limitations so that clients don'tincorrectly believe they have more coverage than they do, and soagents can work with their clients to find other desired coverageelsewhere.

A loss is covered only if it is caused by flooding, as definedin the policy: "...a general and temporary condition of partial orcomplete inundation of two or more acres of normally dry land area,or of two or more properties, at least one of which is yourproperty, from (a) overflow of inland or tidal waters, (b) unusualand rapid accumulation or runoff of surface waters from any source;(c) mudflow." A sewer backup resulting in damage caused by severalinches of standing water is not covered.

For residential properties, the policy has a $250,000 limit forthe building and $100,000 limit for contents. The limits for acommercial property are $500,000 for the building and $500,000 forcontents. In our area, many clients have homes worth $750,000 ormore. If they want coverage for the full value of their homes, wehave to seek coverage from an excess market. We have had a greatexperience with our WYO carrier, First Community Insurance Co.,through which we write the standard policies; however, we havefound that companies in the excess market tend to come and go,making it important for us to select them carefully.

Replacement-cost coverage is available for primary homes. Forsecondary homes, losses are paid only on an ACV basis. This isanother important consideration for agents who, like us, have anumber of affluent clients purchasing vacation homes in coastalareas. We must obtain coverage from an E&S market to getreplacement-cost coverage for these clients. In any case, a fairlyextensive list of items is excluded from coverage under thestandard flood insurance policy. The list includes sidewalks,patios, lawns, shrubs and any property located outside theperimeter of the insured building; any open building (such as aboathouse) or any structure located entirely in, on or over wateror seaward at the mean high tide. Accounts, bills, coins, currencyand deeds are not covered, nor are such structural elements asretaining walls or bulkheads. The standard flood policy does notprovide coverage for either loss of use or loss of businessincome.

Even in an insured building, personal property is not covered ifit is located in the structure's basement or below the foundationof the building. An exception is made for property used to serviceor maintain the building. As an example, a hot water heater in aninsured home's basement would be covered in the event of a floodloss. Improvements to the basement or enclosure, such as panelingand carpeting, as well as furniture in the basement or enclosure,would not be covered.

Applying for coverage

In addition to the type of information needed for any propertyinsurance application, NFIP applications also require theflood-zone rating of the property and certification of theproperty's base elevation if it lies within a high-risk floodzone.

By definition, a property eligible for a standard flood policylies within a community that participates in the NFIP. This meansthat FEMA has created a flood-zone map of the area and classifiedthe land according to specific flood-zone ratings. Zones rated "A"or "V" are 100-year flood zones and are considered special floodhazard areas. The term "100-year flood" can be misleading. It doesnot mean that a flood should occur once every 100 years. Rather, itmeans that the chance of flood is 1% or greater in any givenyear-which means floods could happen several years in a row. ZonesB, C and X are outside a special flood hazard area. Rates are thushigher for properties in zones A and V, and it is these propertiesfor which flood insurance is required when federally backed loansare involved.

An agency can determine the flood zone status of a property inseveral similar ways. Flood zone maps are easy to obtain and can beread accurately with a reasonable amount of training. Many WYOcarriers also provide flood zone determination for their agencies.Many of our clients' properties lie either in an A or V zone. Homesalong the bay side of the island lie mostly within an A zone, wherethe flooding threat comes mainly from rising waters. On the Gulfside, many properties are in a V zone, in which the flooding threatalso includes the potential of tidal surge.

The required base elevation certificate, which is provided by aprofessional surveyor, certifies that the property meets therequirements of local ordinances. (Those requirements are based onthe NFIP's rate maps.) Coverage is available for properties withlower base elevations, but it will cost more. Properties withinspecial flood hazard areas must also meet specific constructionrequirements. A building may be required to be built on pilings,for instance, with no dirt or other material underneath thestructure, so that rising waters will do less damage to thestructure's integrity.

If flood insurance is bought at the time of closing on thepurchase of a building, coverage takes effect immediately. In othercases, a 30-day waiting period applies. This guards against thepossibility that some people will refuse to purchase the coverageuntil they know a huge storm is about to hit. Our peak flood seasonis usually May through November, and we see a slight increase inapplications a bit before the season begins. But we don't have manyclients or prospects calling us right before a storm, seekingcoverage.

FEMA, the NFIP and our WYO carrier have all come to our officeto provide training to our employees, and almost everyone in ouroffice has become an expert on flood insurance. This helps us writeand submit the policies more efficiently. If everything about aclient is "in the box"-the property is in a B, C, X, A or V zone,no excess amounts are needed, etc.-an agent can quote a rate to theclient. "Out of the box" applications are referred to as "submitfor rate" policies. Because of special concerns about theseapplications-they're for properties in a special flood zone, theyrequire high limits, they have a large enclosure below (ifelevated), there's a problem with the base elevation, etc.-mostagencies have to let the WYO carrier determine a rate. We save timefor our clients and work for our carrier because we're able to ratethese "out-of-the-box" applications ourselves, which many agenciescan't do.

Claims and service

Although the flood policy states that "In case of a flood lossto insured property, you must: Give prompt written notice to us(insurance company)," there is no specific time limit for filing aclaim. This is helpful to many of our clients, who use their homesin Galveston as second homes. Not only might they not be here whena storm hits, but they also might not be able to get here for quiteawhile. Sometimes, we get claims that are filed many weeks afterflooding has occurred. Our insureds can contact us, or in the eventof a catastrophe, the carrier may request that insureds contactthem directly through a toll-free number.

Insureds are required to take reasonable steps to mitigate theeffect of the flood and prevent further damage. Obviously, a homethat has been bottled up for four weeks because the owner was outof town will have more damage than one that has been cleaned up andallowed to dry out right away. In most instances, it won't be heldagainst a policyholder if he or she is out of town when a floodcomes and can't get to the house right away. However, "coverage isexcluded for water, moisture, mildew or mold damage caused by theinsured's failure to inspect and maintain the property after theflood waters recede." Many of our clients will thus ask someonethey know in the area to take some basic steps after a flood.

Other than the education we offer our clients and otherprofessionals, processing claims is the most important service weprovide. When our clients have claims, we pass their information toour carrier, who assigns an adjuster and handles it from there.

If a catastrophe occurs, we will send our people out with theadjusters. We do this to help the carrier, to touch base with ourcustomers and to ensure the coverage we've been providing issufficient. Having our only office on the island itself has helpedus provide better service and maintain our reputation. After someflood events, access to the island (or parts of it) has beenrestricted, and we've been one of the few agencies with peoplehere, ready to help.

Ride the wave

We might lose many clients if we didn't offer floodinsurance-even if we provided coverage for all their other needs.Because all our producers and CSRs have expertise in the coverage,we've enhanced our agency's reputation for understanding the needsof clients in our area. Regardless of whether your agency is in anarea known for flooding, understanding this risk and knowing how towork with the NFIP and WYO carriers can enhance your agency'sreputation, add to your bottom line and ensure that your clientsare protected against what could otherwise be a catastrophicloss.