Arranging flood insurance for housing authorities

We are a member company of the Housing Authority Insurance Group (HAI Group), which was created by a group of public housing authorities that had joined together to address their common difficulty in finding insurance. The HAI Group's first offering was liability insurance for public-housing units, offered through a risk retention group they formed. In succeeding years, HAI Group has continually expanded its offerings, creating companies such as Housing Insurance Services. Today, the group encompasses eight companies and nearly 100 employees. We're licensed in all 48 contiguous states, and in 2004 we wrote insurance for 925 public housing authorities. Our clients are our members, and our board of directors is populated by the leadership of the public housing authorities.

The NFIP and WYO program

The Federal Emergency Management Agency (FEMA) created the NFIP in 1968 to provide affordable flood insurance and encourage communities to implement floodplain management measures. Flood insurance through the NFIP is available in communities that formally participate in the government program, by such means as adopting construction regulations and ordinances governing floodplain management. The NFIP develops special flood insurance rate maps for member communities, classifying "zones" of land according to the risk of flooding.
In 1983, the NFIP created the Write-Your-Own program, allowing private carriers to sell NFIP flood policies. Participating carriers receive expenses and a fee for each policy they write, and the NFIP pays underwriting losses. We started our search by identifying more than 100 WYO carriers. We used several criteria to narrow our list. The company's A.M. Best rating was important to us. We sought companies that use the best technology for efficient application submission and binding and that have an efficient claims-handling process. It was also important for the company we chose to provide flood-zone determinations for clients and prospects.

After selecting a WYO carrier, we began a two-faceted marketing campaign. We don't have a marketing staff permanently dedicated exclusively to flood insurance. During the initial "launch phase" of our marketing campaign, however, the staff focused almost exclusively on flood insurance.

We started by mailing printed marketing materials to 3,000 public housing authorities across the nation. Our marketing staff followed up with phone calls to each housing authority. We use our agency management system during any marketing calls to document what prospects talk about and where their interests lie. We also contact prospects by attending 36 local, regional and national public housing trade shows every year, distributing our materials and answering questions. For any client or prospect, we provide a free flood-zone determination.

We publish a quarterly newsletter, "Insight," that we send to our members in both printed and online form. When we launched our flood program, we featured it on the front page of the newsletter. We call each of our members on a regular basis, and we visit about 400 of them in person each year. We made our new flood program an important topic of each of these discussions.

We've also taken advantage of excellent marketing support that FEMA provides. We've received a variety of free printed materials, to which we attach our own labels before sending them. In creating our own materials, we received the agency's permission to use some of their copyrighted images. Within our marketing and operations department, everyone who has any involvement with flood insurance has taken a basic online flood-insurance training course and received a certificate from FEMA. A few staff members have gone on to take more advanced online training. In the future, we plan to take advantage of a new marketing reimbursement program that FEMA introduced in September.

Buildings located in designated high-risk flood zones usually are required to carry flood insurance, which does some of our "marketing" for us. When we provide flood-zone determinations for our members, their flood zone influences their decision of whether to purchase the coverage. Though flood insurance can be important for any client, budget issues lead some to decline flood coverage if we determine that they are not in a high-risk flood zone.

Coverage details

With the diversity of housing operated by public housing authorities, we use four of the basic types of flood insurance policies, each providing coverage for both a building and its contents: single-family, two-to-four family, other residential and nonresidential. In addition to buildings that are home to between one and four families, we insure larger buildings that have between eight and 20 units. Many public housing communities include community centers, which are classified as nonresidential.

Available limits and rating are standard nationwide and depend on a variety of factors, such as the type of structure; whether a building has a basement, which is defined as having all four walls below grade level; what program, or stage of participation in the flood insurance program, a community is involved with; and the flood zone in which a building is located, according to a flood insurance rate map. All locations in a participating community are identified as either "A" or "V" zones (which are those at higher risk of flood) or as "B," "C" or "X" zones (those at relatively lower risk of flood).

Limited coverage is available during the initial phase of a community's participation in the NFIP, which is known as the "emergency program." During this time, single-family and two-to-four family dwellings have a single limit of $35,000, and other residential and nonresidential buildings have a $100,000 limit. Contents-only coverage in this program is limited to $10,000 for any residential structure and $100,000 for nonresidential units.

In the "regular program," all residential buildings can obtain $250,000 building limits and $100,000 contents limits; nonresidential limits are $500,000 for building and $500,000 for contents. Any structure can purchase contents-only coverage in the regular program.

Within communities participating in the regular program, properties located in zones B, C or X may be eligible for the NFIP's preferred risk policy, which can drastically reduce premiums. The following example demonstrates how the flood zone designation has a significant effect on annual premium: A single-family home with an enclosed basement is insured for the full $250,000/$100,000 limits, with a $3,000 deductible for both the building and contents. If the structure is located in zone "VE" (a rare subsection, among several types of "V" zones), the annual premium would be $5,749. In zones B, C or X, the same coverage can cost as little as $352. This difference helps further one of the NFIP's goals, which is to discourage too much construction in flood-prone areas.

Our members' coverage needs are often specific to their status as public housing authorities. They own all the structures they operate, so building coverage is a primary concern. Since some of the buildings-particularly the "other residential" classification-are multi-million-dollar structures, we work with a private excess carrier to purchase any additional coverage needed for the building.

Tenants are responsible for insuring their own contents, so the contents coverage we write is only for items the housing authority owns. This may include furnishings in common areas, and relatively large contents limits may be needed for items located in nonresidential community centers. Some outside structures, such as any decks, are ineligible for flood coverage. In an enclosed basement, such items as boilers are covered under the building coverage. Other items, such as furniture and paneling, are not eligible for flood coverage in an enclosed basement.

Knowing what losses are covered is just as important. The NFIP's flood insurance policy restricts coverage to losses caused by "flood," as defined in the policy: "…a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area, or of two or more properties, at least one of which is your property, from (a) overflow of inland or tidal waters, (b) unusual and rapid accumulation or runoff of surface waters from any source, (c) mudflow." This clearly eliminates coverage for water damage not related to flooding.

It's also important to remind clients that flood coverage does not take effect until 30 days after coverage is purchased, and the entire annual premium is due at the time of binding. This prevents a building owner in a high-risk flood zone from waiting until a flood is a certainty before purchasing flood insurance. An exception to the waiting period permits flood coverage to take effect immediately when it is bought in conjunction with the purchase of a property, or if additional flood coverage is purchased as a requirement of re-financing a property. Many of our members seek flood zone determinations as they acquire additional property, and the policies they buy for those properties take effect immediately.

Riding the wave

We've sold flood insurance to members in every part of the country, but most policies have been purchased by members in the South. When we're aware of potentially damaging weather-related events, we call our members in affected areas to see how they're doing-often before they call us to report any claims. In addition to being a sound practice, this seems to be bringing our members good luck so far, since we have yet to receive a single flood-loss claim.

We're pleased with the support from our IT department, which helps us provide convenient service to our flood-insurance clients. Among our members who have flood coverage, the average number of policies is 10, but some have purchased as many as 50 policies (since housing authorities typically own property in many areas). We regularly scan all the policies a member has purchased onto a CD and send it to the housing authority. This makes their review of their policies easier than it would if the member had to leaf through the paperwork of 50 policies.

One reason we selected the WYO carrier we did was that they agreed to work on renewal policies 90 days before expiration, rather than their standard 30 days. We like to get this "head start" because our members have multiple properties, and we want to be sure we and our members have time to review any changes in the property they own and in the coverage they may need.

This year, we're using the extra time at renewal to review a specific coverage change. Previously, the preferred risk policy was available only for single-family and two-to-four family dwellings. Beginning May 1, 2004, the policy became available for the other residential and nonresidential classifications as well. At renewal time, we're carefully reviewing the properties of every one of our members with flood insurance, and with the change in eligibility, we're transferring them to the new program and saving them a considerable amount on their premiums.

Ebb tide

The weather-related events that have made headlines across the country in the past few years show that flood insurance can be an important coverage to property owners in almost all areas of the country. The standardized rates and support provided by the NFIP make flood insurance relatively easy to provide. By participating in the NFIP, we feel good at the end of the day, knowing that our agency has helped our members cover a potentially devastating exposure. Regardless of location, flood insurance is a coverage that every agency should consider for its clients.