WHEN new residents settle in the Outer Banks islands, flood insurance is usually the farthest thing from their minds. They come here to clear their heads of such worries in the cobalt blue waters of the North Carolina coast. Drawn to the beaches, many Outer Banks homeowners, like the ones here in Kitty Hawk, purchase oceanfront property. When they experience their first of the islands' frequent hurricanes, however, these landlubbers discover that the Atlantic, calm and inviting to visitors, can be a source of despair to coastal dwellers without flood insurance.
I've sold flood insurance with Gateway Insurance for 16 years, but my agency's presence in coastal North Carolina goes back much further. The Wright Brothers might have consulted the flood insurance experts of Dowd and Twiddy, as Gateway was known during the years Wilbur and Orville conducted the first airplane flights in Kitty Hawk. Then a sandy wilderness ideal for turn-of-the century inventors looking for seclusion, the town is today a tourist Mecca of bustling boardwalks and seaside chateaus. Many of our clients are seasonal residents whose coverage for their high-end vacation homes constitutes the bulk of our flood insurance business.
Like the Outer Banks, Gateway has grown to meet the needs of northeastern North Carolina's developing communities. We have nine locations along the state's seaboard. In my office, 75% of our approximately 3,000 accounts is personal-lines business. Flood insurance is one of our agency's best sellers. Two producers and I in the Kitty Hawk office sell the product. Ten more agents do the same for our sister sites.
Gateway agents undergo extensive flood insurance sales training. We educate our agents in the Federal Emergency Management Agency's flood zone rating system, in which a letter code indicates an area's propensity to flood. In our area, for example, V and VE zones, designations for high-risk coastal regions, are prevalent. Determining a flood zone is usually an easy, automated process. We simply access the Web site of a flood zone determination service, plug in the insured's address, and the site identifies its correct zoning almost instantaneously. Occasionally, however, the service's Global Positioning System makes mistakes. A house two blocks from the ocean may register as a property in a low-risk flood zone, and other properties may not register on the GPS system at all. When this happens, we could call the service and ask someone there to determine the correct zone by consulting a FEMA flood-zone map, but that would take time, which a client might not have. In these situations, our agents need to make manual flood zone determinations. Consequently, we're all trained to read flood zone maps.
Our agents must learn how to obtain elevation certificates, which show that a property is in compliance with a community's floodplain management ordinances. A certificate originates with a property's initial survey and changes hands when the property is sold. It can be grandfathered from one homeowner to the next as long as at least 50% of the property remains unaltered. Over time, however, the certificate can (and usually does) become illegible, and consequently, useless. When this happens, it is the responsibility of the seller's real estate agent to get a new one. Our job is only to notify the real-estate agent that a new certificate is needed, but we go a step further and tell them where to get a new one–from the town hall, original surveyor or a newly hired surveyor.
We depend on local real-estate agents for leads and referrals. Many of our clients buy vacation homes on the Outer Banks. They come from all over the Northeast, making a focused marketing campaign impossible. Real-estate agents, however, have direct access to these prospects.
One way we develop relationships with real-estate agents is by sponsoring flood insurance conferences specifically geared to them. During the conferences, real-estate agents ask us questions about the National Flood Insurance Program and how it applies to our area. If they have flood insurance questions regarding sales they are currently closing, we field those, too–and sometimes sell a flood-insurance policy as a result.
The conferences accomplish two things: 1) They create flood-insurance-savvy real-estate agents, and 2) they forge a bond between our agency and the real estate industry, a bond our agency needs to survive. Every quarter FEMA distributes new flood-insurance-related literature, which we pass on, along with agency-prepared fliers, brochures and pamphlets, to the real-estate agents who've attended our conferences. They display our information in their offices, and when their clients ask about flood insurance, the real-estate agents send them to us.
When we meet with prospects, the first thing we do is inform them that we do not sell flood insurance on a stand-alone basis. Rather, we sell the entire insurance package for a property–homeowners, wind and flood. In the event of hurricanes, which often strike Kitty Hawk, our approach ensures that damage to a house will be covered, regardless of whether caused by wind or storm surge.
Sometimes seasonal dwellers in the Outer Banks say they want to have the agent who insures their primary residence also write part of the coverage on their vacation home. We reply that it is important that all coverage on their vacation property be placed through just one insurance agency. We stress that dividing coverage among insurance agencies is risky to all concerned. The practice can lead to uncovered claims for homeowners and litigation against agents and insurers.
Once homeowners decide to make us their agent, we discuss their coverage and the peculiarities and limitations of flood insurance. We make sure that they know flood insurance coverage for anything other than the primary home is on an actual-cash-value basis. For houses that serve as second homes or a vacation homes, as many of Outer Bank's dwellings do, actual cash value may be far below the purchase price. Also, some vacations homes may be worth more than the maximum limits available under the National Flood Insurance Program. A vacation home with a $400,000 market value, for example, can obtain no more than $100,000 in flood insurance on the house's contents and $250,000 on the structure itself–and that's only on the actual cash value of the reconstruction costs. Excess flood insurance, available from private insurers, can provide additional protection, although it is expensive.
We point out to our customers the flood insurance policy's often-overlooked enclosure clause. It stipulates that, for a house built on pilings, the walls of a ground floor enclosure can be insured for flood, but anything inside the enclosure cannot. Which parts of the walls are covered by flood insurance is up to the adjuster, who might say, "We'll cover the sheet rock on the inside, but we won't cover the paint on the sheet rock," or "We cover nothing on the ceiling, and, of course, no furniture."
With this clause in mind, we advise our clients to use their ground floor enclosures wisely. Most Outer Banks residents use them as storage rooms. I met with a new client a couple of years ago, however, who had turned his into a recreation room. The client had a fairly large, oceanfront estate and paid about $12,000 for his insurance. His rec room had $40-per-yard carpet, a slate pool table, an entertainment center and a flat screen TV. At our initial meeting, I explained to the homeowner that none of the property in the rec room was covered under flood insurance. He went ballistic.
Soon after, Hurricane Isabel hit. The client lived near my own residence, so I could see the waves pummeling his house during the storm. When I drove past the client's home once the hurricane had passed, I noticed his flat screen TV sitting in his driveway, presumably where the floodwaters had left it.
The inability of flood insurance to cover a loss like this prompts some homeowners to limit the amount of flood insurance they buy. In the highest elevations of our island, which are FEMA-designated preferred flood zones, lenders do not require homeowners to purchase flood insurance. A few choose not to. Others buy the basic flood coverage, but opt not to buy excess flood policies.
Most homeowners, however, do purchase flood insurance, either by choice or by necessity, which makes for a steady source of business. Much of our island is in a high flood risk zone, an area in which lenders require the purchase of flood insurance. Other residents are easily persuaded to buy the coverage once our agents point out the consequences of not getting it. After hearing our cautionary tales, only one of our clients in the past four years declined flood insurance.
The benefits of having flood insurance are many, and the expense is relatively low. Flood insurance is the least costly of home coverages. A basic flood insurance policy may cost as little as $300. The commission on a basic flood insurance policy is 20%. Excess flood insurance costs more than basic, typically thousands of dollars, and carries a 12% commission. We are successful 90% of the time in selling this extra protection.
In the past year, we increased our total sales of flood insurance policies by 60% without telemarketing or advertising. Much of this was new business garnered through word of mouth. Considering that the average mortgage on a second house in our market remains in effect four years or less, our growth is amazing. In essence, we're losing 25% of our business every year, yet we continue to grow due to sheer demand.
Our goal as an insurance agency, however, is not only to make money, but also to make sure our clients are financially secure in the event of a loss. We've found that the best way to protect our clients is to reduce their exposure. We do this through education, but when it comes to flood insurance, agency-led instruction is not enough; community leaders must step in and help prepare their citizens for the inevitable.
Towns and builders must work with FEMA to make flood-conscious design mandatory. A simple change to the blueprints, and the property inside my client's recreation room enclosure might have been eligible for insurance. At the very least, flood vents, which allow water to come in and out of a flooded room, could have mitigated the damage, if the town had mandated their installation.
The world has changed a lot since the Wright Brothers launched the aviation industry here in Kitty Hawk, but some things have stayed the same. The winds and waves that sometimes lash this seaside community are no different from those of Wilbur and Orville's day, and the current incarnation of Dowd and Twiddy, the agency that was on hand to see the Wright Brothers make history, still helps protect residents from the consequences of loss. But now we have a tool–flood insurance–to take their protection to a higher plane.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.