The $1 trillion dollar Infrastructure Investment and Jobs Act, which was signed into law on Nov. 15, 2021, includes billions of dollars in funding to assist communities in developing resilience measures to protect against damages from flooding and other natural disasters.

Supporting this new law, the Financial Stability Oversight Council (FSOC), established in the wake of the 2007-2009 financial crisis and charged with identifying risks to the financial stability of the United States, has flagged climate change as a major risk in its 2021 annual report. 

The FSOC's report highlights the risk from natural disasters and the new law's emphasis on getting communities flood-ready shows that “to Congress and the White House, resilience is no longer an afterthought but a national priority," according to Pew Charitable Trust.

“Flooding is occurring more often and, as we continue to build, it's going to occur more and more often," says Christa Nadler, area executive vice president—property, Risk Placement Services Inc. “I think we're doing a fairly good job of accounting for stormwater run-off and flood risks on new build projects, but cities and municipalities are having to defer maintenance on their infrastructure and that can be a big contributor to the flood risk in a particular area." 

The threat of flooding has grown to areas beyond those traditionally identified as flood prone. However, carriers are becoming increasingly comfortable with using sophisticated models to underwrite flood perils. As a result, agents are now in a position to offer coverage for what was once considered an uninsurable risk.

“Planning ahead for the more competitive landscape and fostering relationships with private carriers that are expected to move in the flood market could greatly benefit any independent agent focusing on their flood insurance book going forward," says Justin Smith, chief underwriting officer, Applied Underwriters Inc. 

Here are three recommendations when providing flood coverage: 

1) Don't let lenders dictate coverage requirements. Many people see flood insurance as an unnecessary expense and are not inclined to purchase coverage unless it is required by their mortgage company.

In this instance, agents need to remind clients “that flooding doesn't just occur in high-hazard locations," Nadler says. “I can't tell you how many times I see an insured choose not to purchase flood coverage or to cancel flood coverage because it's not required by the bank."

“Bank covenants shouldn't dictate our decisions to buy flood insurance," Nadler adds. “Whether your lender requires the coverage or not, you need to assess the risk and decide whether you need the coverage."

Overall, agents should not be afraid of offering flood insurance. “It's a valuable coverage, and something that agents should have in their tool belt when talking to customers, whether small commercial, large commercial or personal customers," says Cassie Masone, vice president of flood operations, Selective.

If your staff aren't comfortable offering flood coverage, “reach out to your carrier and ask for additional training and support," Masone says.

2) Work with a carrier and offer options. “Make sure you're working with an insurance carrier that's going to support you and provide you with training and the guidance from an underwriting perspective," Masone says. “Agents are going to need this carrier backing, especially with the shift to the new Risk Rating 2.0 methodology."

Comparing the coverage provided through a National Flood Insurance Program (NFIP) policy and a policy that is sold by a private carrier is important when presenting coverage to a client. “Agents that are more experienced with writing flood insurance will generally consider both options when talking with a customer," Masone says. “But for the most part, we find that agents are generally comfortable and familiar with the NFIP policy and only provide that quote."

“There are also instances where an agent will ask a client if they want a flood insurance quote and when the client declines, the agent moves on," Masone adds. “Agents should always provide a flood insurance quote and talk about the benefits of the coverage allowing the client to make a more educated decision."

Private carriers may offer higher coverage limits than FEMA's NFIP policies, which are currently capped at $250,000 for residential buildings and $500,000 for non-residential buildings. Detailing the differences in coverage between policies may ensure agents can offer clients what they are looking for. 

“A savvy insured is going to recognize the coverage differences, but there is a pricing differential," Nadler says. “In an environment where insureds are trying to cut costs, it's hard to justify a higher spend on insurance."

3) Assessing and presenting the risk factors. Recent years have shown that flooding can and will occur in areas of the country that are not traditionally thought of as flood zones. Understanding each risk and presenting sufficient information to the underwriter can only work in the client's favor. 

“If we can tell the story to our carriers about why a particular risk is better than another, it helps us in our negotiations," says Nadler. “If an insured can show us that there have been significant infrastructure improvements in their area, the markets can take this into consideration and price the risk accordingly." 

Olivia Overman is IA content editor.