This information was intended to be for Labor Day, September 2018, and then guess what happened? Hurricane Florence hit North Carolina and South Carolina with tremendous flooding. Estimated Damages from Florence are $45 billion.
What was to be a year of recovery after two horrific hurricanes named Harvey and Irma in 2017, history was just re-written with one of the most intense storms to hit the Florida Panhandle this week. Hurricane Michael hit the Florida Panhandle, Georgia and is now trailing off to North Carolina and the Atlantic.
Only 12% of American homeowners purchased flood insurance ( according to a 2016 poll by the Insurance Information Institute – www.iii.org) and according to the statistics prior to the 2017 storm year, out of all flood policies sold, 68% were on single family homes, 21% on condos, and 5% covered businesses and other non-residential properties.
E & O claims occur because of weather conditions relating to: Tropical Storms, Hurricanes, Heavy Rains, Winter Storm Surge, or Snow Run Off. Flooding can also occur after massive fires have removed vegetation in fire ravaged areas. Every State is susceptible to flood conditions.
Do you have a plan to help your Agency Customers?
Here are some E & O Questions for your agency:
- Why is your agency denying customers the right to purchase flood insurance?
- Why are you not getting declines for coverage in writing? Is your agency offering flood insurance or not offering flood insurance?
- Why does your agency not know the rules on procuring flood insurance?
Flood E & O Claim Information based on 2017 Flood Incidents
E & O scenario #1: Know the Rules of the Flood Program
Homeowner is selling one home and buying another home.
*While having one home up for sale, and purchasing another home, agent did not ask the homeowner how he would be purchasing the second home. The emails back and forth suggested a title closing, so agent assumed the new home would be purchased through a lender.
Origial Home #1 had flood insurance
New Home #2 had an application for new home purchase completed and sent to the Title Company for closing and disbursement of funds.
Homeowner went to closing with ALL CASH. No mortgage lender involved.
At the closing, the agent was not aware that there was not a lender involved. The application and payment sent to purchase flood, but now there was a 30 day waiting period for flood. Hurricane struck 5 days after the title closing.
What could have gone right - went wrong:
- By assuming the customer was having a traditional mortgage closing was a failure in communication. Had the agency verified a cash only closing, they would have used the opportunity to let the customer know they would have a 30 day waiting period for a mortgage cash transaction. By not documenting the customers transaction, the agent may have been able:
- to assign the existing flood policy to the new home purchase at the time of closing or ;
- suggested not to close on the new home for 30 days or:
- the customer may have decided to borrow money from a lender so the flood insurance would go in force at the time of closing.
E & O Loss: Flood occurred on the newly purchased home prior to the flood policy being in place.. E & O Carrier paid for loss on contents and structure.
(By the way, Home#1 did not flood and had a flood policy)
CLAIM: The E & O carrier really saved both the agent and the client.
E & O Scenario #2 – No Decline of Coverage in File
Homeowner asked agent to procure adequate insurance on new home mortgage closing. Agent sent proof of homeowner quote and certificate to mortgage broker. Agent asked mortgage broker if the lender required flood insurance. Answer was no. Agent prepared flood quote and emailed to client anyway. Client closed on home and mortgage company disbursed funds to homeowner’s insurance carrier. No flood coverage listed on the mortgage closing statement. Agent has record of flood being offered to client with no response. Flood happens in basement and homeowner stated he asked for flood. Agent stated he sent over quote and outlined that this was not required by his lender. No decline by the homeowner.
GOOD: Offered coverage
BAD: No quote expiration time frame on the email from the agent and no follow up email or call to say the coverage was not accepted.
LOSS: Demand Letter to Agency Stating the Customer Requested all Coverages be afforded.
BEST PRACTICE: Issue quote and accept or decline in writing. (Mortgage closings always appear to have a high volume of issues for insurance agents - so best to get a decline upfront and document the file). .
E & O CLAIM # 3 – It Never Floods Where We Live
So many agencies state they do not offer any type of flood coverage. Things like “I live on a mountain” or I tell my insureds I just do not offer Flood. Obviously, depending on the type of products you are selling, not everyone needs to offer flood. The reality is if you are writing homeowners, dwellings, condo’s, or any other coverage that flood is not a covered peril, your agency may have a reality check when it comes to the “once in a lifetime flood” that occurs twice in one year. Procedures may need to be set in place to methodically announce you are offering flood to existing clients and offer flood to all new clients.
Excess flood is another option that many agents do not consider on high value homes and dwellings. Another topic that seems to happen after a major catastrophe are the expenses that homeowners may experience because they cannot get back to their home or live in their home after an event. Many complaints exist from Condo owners that their unit did not flood on the 15th floor, but they could not live in their building due to damage from flooding and no electricity. The expenses to live or rent another apartment became a tremendous burden. Addressing these issues with clients is very valuable.
Nothing speaks louder to your E & O carrier than having a documented file showing you offered and the customer declined coverage. Are you protecting yourself?
E & O CLAIM # 4 – Direct Billed Policies
Many agencies have policies that have been direct billed for 6 or more years by the carrier. The original application, the original flood declination may not be in your file either. If you are relying on the carrier to keep an application in its system for this long, you may be waiting for Santa Claus to come down the Chimney in July. The reality is your agency may have sold policies that had a high wind deductible percentage. Take a moment and review policies that have coverages that “at the time of purchase” a high wind deductible percentage may have been the only option for this homeowner. When you help your customer, you can also get a flood declination for your file.
Disclaimer: Although these E &O events are representations of what may occur in many agencies, many types of flood claims occur every year just like these. Private and Federal Flood products are available. Continuing Education is also available and many flood carriers are offering training in your area or online. These events are written as a resource for your agency to discuss and establish procedures to protect you and your customers from catastrophic events. Do not wait for more fires, more hurricanes, or more rain events to be pro-active.
2018 NFIP GUIDELINES are available online now.