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3 Key Facts to Remember with Primary and Excess Flood Insurance

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Only 26 percent of the overall economic losses caused by natural disasters worldwide during 2016 were covered by insurance.1 Flooding, earthquakes, and severe weather—the top three perils plaguing homeowners—combined for 70 percent of all economic losses in 2016.

In addition to natural disasters, overburdened or clogged drainage systems can lead to property damage both within and outside floodplains, and construction and new development can affect natural drainage—creating new flood risks.

Bill Gatewood, Corporate Vice President and Director, Personal Insurance, Burns & Wilcox, and Kasey Vaughn, Corporate Vice President and Managing Director, Burns & Wilcox, sat down with Insurance Market Source to share three key facts that brokers and agents should discuss with clients to ensure they are properly covered with Primary and Excess Flood insurance.

1. Homeowners insurance does not cover losses attributed to flooding

Floods are the number one natural disaster in the U.S., and the cost of recovery from flooding grows every year. The average flood claim costs more than $46,000, and even though flood insurance is not federally required, any client location can be financially vulnerable to floods.2

As a result, understanding that Homeowner’s policies do not assist with flooding damage is significantly important.

“In some circumstances, Homeowner’s insurance policies can be packaged with Primary and Excess Flood coverage,” said Vaughn. “However, many coastal clients are purchasing Flood insurance through the government.”

The National Flood Insurance Program (NFIP) is a government-funded insurance program that offers two types of Flood coverage: Dwelling coverage (up to $250,000), and Contents coverage (up to $100,000).

“If a client’s personal property – outside of the dwelling itself – totals to a value beyond $100,000, it is wise to inform the client of their options with Excess Flood coverage in the private market. Flood insurance through the NFIP does not pay more than the policy limit for any losses regardless of the circumstance,” said Vaughn. “In private sector we can cover the additional costs or losses not included in those coverage limits, and some brokers and agents are not aware that Excess Flood coverage is available.”

2. There are alternatives to the NFIP

Flood insurance is needed outside of flood zones

“Many policyholders tend to seek flood coverage through NFIP, however the rates are typically lower in the private wholesale market,” said Vaughn. “The private market offers more coverage options than the NFIP, providing replacement costs and offering coverage for other structures – something that NFIP does not cover.”

Through NFIP policies, policyholders can only expect up to $250,000 on primary dwellings and replacements that only match the value of lost property during the time of a loss—not what the owner originally paid. However, private market flood insurance offers Primary and Excess Flood packages. For a home worth $300,000, for example, coverage from the NFIP will fall short of the home’s value. Brokers and agents can gain the additional $50,000 of coverage for clients in an Excess Flood policy from the private market.

3. Flood insurance is needed outside of flood zones

Many claims handled by the Federal Emergency Management Agency (FEMA) originate from areas that are considered non-hazard areas. It is noted that clients outside of mapped high-risk flood areas file more than 20 percent of all NFIP flood insurance claims and receive one-third of Federal disaster assistance for flooding.3

“If a client’s home does not appear on a flood map, this simply means the risk may be lower. However, it does not mean that flood damage is impossible,” said Vaughn.

Flood Insurance Rate Maps (FIRMs) show areas of high and moderate to low flood risk in an effort to set standards. They are often used to set minimum building requirements for coastal areas and floodplains, determine flood insurance requirements, and by FEMA to help determine what homeowners should pay for flood insurance. As Vaughn states, any area can become a flood zone regardless to whether it appears on a FIRM.

Living near a river or in a city that possesses a dam can be seen as a cautionary indicator that Flood insurance is even more necessary. For example, inhabitants near the Neuse River that runs alongside Kinston, North Carolina often anticipate that any excess water in the area runs off into the river. However, heavy rains caused by Hurricane Matthew affected the area, causing water to rise more than 10 feet in some areas and resulting in major damage to many properties.4

Gatewood added “The key point to note is that if a client does not live in a flood zone, their rates will most likely be significantly cheaper. That is a strong selling point for the added protection.”

“Many perspective clients fear that Primary and Excess Flood coverage is expensive—particularly if they do not live in a flood or hazard area,” said Vaughn.

“However, all 50 states had flooding incidents in 2016,” added Gatewood. “Floods can occur almost anywhere and at any time.”

Brokers and agents have the advantage of industry knowledge and can therefore advise clients that living outside of flood zones increases policy affordability and owning homes with proper venting and elevation lowers costs more. Moreover, flooding can have negative long- and short-term implications for the economy, but properly insured property can help combat that concern.

“Losing an underinsured home to a natural disaster—floods in particular—reduces the likelihood that the home will be rebuilt and the family in that home is displaced physically and financially,” said Gatewood.

Likewise, if a business experiences similar misfortunes, it displaces the owner and the employees financially. Too much of this in one region can have negative impacts on property values and insurance rates in the area. Opening discussions about the breadth of options clients have to be protected against these hazards can not only strengthen client relationships but it can also help to quell some of the larger negative impacts on the economy.


  1. Insurance Journal
  2. NFIP Statistics, 2011 to 2015
  4. The New York Times

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