Denis Miller's New York agency, Heli H. Miller Insurance Agency, received the Agency of the Year award from the Federal Insurance Administration for its efforts to educate and protect clients in flood-prone areas.
By Elisabeth Boone, CPCU
you lived on the coast of North Carolina during the hurricane season of 1999, you might have been one of the tens of thousands of people whose vehicles jammed the highways as they headed inland to escape a predicted storm surge and massive coastal flooding. If you lived inland, chances are you felt pretty safe; rarely if ever had you experienced the fierce destructive power unleashed by a hurricane.
As history records, the people who fled inland were going in exactly the wrong direction--and the people who lived inland were tragically mistaken in their assumption that they were out of harm's way. Well into the next year, residents of inland North Carolina were going about the onerous and painful task of salvaging their livelihoods from the devastation of swirling floodwaters that had engulfed everything in their path.
The grim lessons learned from that autumn disaster stand as a reminder not only of the power of nature but also of the means available to mitigate its impact on the lives of families, businesses, and institutions. Leading this effort is the National Flood Insurance Program (NFIP), which since 1968 has been providing an array of services to educate and protect communities that may be vulnerable to floods.
To many of us, the phrase "federal program" conjures up familiar images of bloated bureaucracies, obfuscatory red tape, and taxpayer-funded handouts to the undeserving. The National Flood Insurance Program bears little resemblance to this unappealing scenario. In fact, as it has evolved over the past 30 years, the NFIP offers a shining example of public-private partnership at its best. To find out how NFIP works with insurers, agents, and communities to mitigate flood losses, we'll talk with outgoing Federal Insurance Administrator Jo Ann Howard. Then we'll speak with Denis Miller, an independent agent who partners with NFIP to inform and protect policyholders in his Long Island, New York, operating territory.
How it works
Established by Congress with passage of the National Flood Insurance Act of 1968, the National Flood Insurance Program is administered by the Federal Insurance Administration (FIA) and the Mitigation Directorate, components of the Federal Emergency Management Agency (FEMA), an independent federal agency.
The Federal Insurance Administration is not just another government agency: it's also a business of impressive proportions. "The FIA is now the largest single-line property and casualty insurer in the United States, with 4.3 million policies in force covering almost
$550 billion in property," explains Jo Ann Howard, who served as Federal Insurance Administrator during the Clinton administration. "Its mission is to educate U.S. property owners about the risks of floods and provide flood insurance to accelerate recovery, mitigate future losses, and reduce the personal and national costs of flood disasters."
"I push flood insurance--not for the commission, but because I know I'm doing a good thing for my clients."
The National Flood Insurance Program is a federal program that enables property owners in participating communities to purchase insurance protection against losses from flooding. This protection is designed to provide an insurance alternative to disaster assistance, which is an increasingly costly means of repairing flood damage to buildings and their contents. Participation in NFIP is based on an agreement between local communities and the federal government under which flood insurance will be made available in a community if it adopts and enforces a floodplain management ordinance to reduce future flood risks to new construction in Special Flood Hazard Areas. This is defined as an area of land that would be inundated by a flood that has a 1% chance of occurring in any given year, also referred to as the base or 100-year flood.
NFIP is a voluntary program open to all communities. More than 19,000 communities are currently participating, and approximately 1,000 communities have undergone flood hazard mapping but do not participate. "Many of these communities are in rural or isolated areas," Howard notes, "and this is a small number compared with those that do participate."
Jo Ann Howard, Federal Insurance Administrator during the Clinton administration, oversaw the operations of the National Flood Insurance Program.
Since Congress passed the National Flood Insurance Reform Act of 1994, Howard says, NFIP has experienced dramatic growth. A key provision of the act obligates federally backed mortgage lenders to ensure that properties they finance are covered by flood insurance. Also fueling growth in the program is an increase in the number of preferred risk policies sold in secondary flood risk areas. "Agents in these areas are really encouraging their clients to buy this coverage," Howard notes. Another factor in NFIP's growth is the public's wider awareness of changing weather patterns and methods of property development that can put a community at increased risk for flooding.
Not a bailout
It's often said that residents of eligible communities don't buy flood insurance because they think the federal government will bail them out after a flood, despite the fact that they have no flood coverage. What's the truth of the matter?
"The best way to recover financially from flood damage to buildings and belongings is to be fully insured with flood insurance," Howard responds. "Flood insurance is the best way to recover quickly and fully after a flood disaster." She goes on to cite the benefits of having flood insurance over relying on disaster assistance. Agents can use each of her points as a persuasive argument with a client who resists purchasing flood coverage.
* The property owner is in control. Flood insurance claims are paid even if the president does not declare a disaster, which is required to trigger most forms of disaster assistance. Federal disaster declarations are awarded in less than 50% of flooding incidents.
* Flood insurance has no payback requirement. The most common form of disaster assistance is a loan that must be repaid with interest.
* Flood insurance provides reimbursement for all covered losses up to $250,000 for homeowners and $500,000 for businesses. The average individual and family disaster relief grant is only $2,500.
* Flood insurance makes economic sense. The average cost of a $100,000 flood policy is approximately $350 a year, or less than $1 per day. The average payment on a Small Business Administration disaster loan is $104 a month or $1,250 annually.
"Receiving the Agency of the Year award created a great feeling in my community, because everyone knows the Miller Agency helps people," says Denis Miller.
WYO: partnership in action
The vast majority--some 95%--of flood insurance policies are marketed, written, and serviced not by the government but by the 92 private insurers that participate in NFIP's Write Your Own (WYO) program. Just 5% of flood policies are written direct through the NFIP Servicing Agent to accommodate independent producers who don't represent a WYO carrier. The WYO program allows participating property/casualty companies to write and service the Standard Flood Insurance Policy in their own names. The companies receive an expense allowance for policies written and claims processed, while the federal government retains responsibility for underwriting losses. The goals of the WYO program are:
* Increase the NFIP policy base and the geographic distribution of policies
* Improve service to NFIP policyholders through the infusion of insurance industry knowledge
* Provide the insurance industry direct operating experience with flood insurance
How is NFIP's flood coverage priced, and what percentage commission is paid to independent agents who arrange the coverage for their clients? "A number of factors are considered in determining the premium for flood insurance coverage," Howard says. "They include the amount of coverage purchased; location; age of the building; building occupancy; design of the building; and, for buildings in Special Flood Hazard Areas, elevation of the building in relation to the base flood elevation." For direct business, the commission is 15% of the first $2,000 of annualized premiums and 5% on premiums in excess of $2,000. The same amount of commission is built into the expense allowance paid to WYO insurers; however, they have discretion as to the amount they pay agents.
"We expect and encourage companies to use their own best business practices," Howard asserts. "The strength of the WYO program is companies doing what they do best. Private insurers and agents are the best qualified to offer flood insurance underwritten by the federal government."
Building awareness
A key component of NFIP's strategic plan is a wide-ranging effort to increase awareness of flood coverage among independent agents and their clients. "We have several mechanisms to promote awareness and education for agents and their customers," Howard says.
* Agent seminars and workshops. In Flood Year 2000, NFIP sponsored 415 Insurance Agent Seminars for nearly 14,000 agents. In 44 states, agents who attended NFIP workshops received continuing education credits.
* Print ads are published in insurance trade journals, such as Rough Notes.
* Direct mailings are targeted to agents.
* A co-op advertising program reimburses 25% to 50% of the costs incurred by participating agents.
* A lead program allows agents to obtain referrals to prospective clients (800) 720-1093).
* Collateral materials are targeted to agents, and other materials are designed to help agents target current and potential clients.
* A portion of the NFIP Web site is dedicated to information developed specifically for agents.
* A Basic Agent Tutorial is available via an order form on the Web site (www.fema.gov/nfip).
* The Flood Insurance Producers National Committee, established in 1982, has as its primary charge to get the word out about the importance of flood insurance and the impact of floods as the nation's #1 catastrophe. FIPNC is also a sounding board for improvements in NFIP. Members are agents and brokers from around the country.
Blueprint for the future
Looking ahead, "Our major challenge is to build the National Flood Insurance Program for the 21st century--a time when speed is supreme, information is empowerment, and convenience is king," Howard says. The key initiatives NFIP plans to pursue over the next few years are aimed at meeting that challenge:
* A business process improvement initiative and statement of mission and vision.
* An outside evaluation of the program's performance over its 30-year history.
* An e-rating system to give agents desktop access to the risk and elevation data they need to rate a policy.
* New partnerships with state legislators to enhance their understanding of NFIP's activities and to suggest ways they can help improve awareness of flood risks and flood insurance protection, and promote sound floodplain management.
* New Plain English policies (effective December 2000).
* Consolidation of management of repetitive loss properties in a special direct facility and notification of WYO companies, agents, and policyholders. As funds become available to offer mitigation alternatives to these property owners, NFIP expects this initiative to reduce the almost $200 million per year in losses to properties that sustain damage on multiple occasions.
* Completion of lender compliance study conducted by the General Accounting Office in response to Congressional members' concern about the low number of flood insurance policies among disaster victims in the upper Midwest floods of 1993 and 1999 and in Hurricane Floyd.
* Cover America II. With only about 35% of structures in Special Flood Hazard Areas insured, the Federal Insurance Administration has set an objective to increase the number of policies in force by an average of 5% per year. To help achieve this goal, in 1999 FIA launched Cover America II, a five-year nationwide marketing and advertising campaign. The purpose of the campaign is to increase awareness of floods and flood insurance so that more people will protect themselves against flood losses. A new brand--"Be Flood Alert"--is the foundation of the campaign. Major campaign components are television, magazine, and direct mail advertising; the co-op advertising program through which insurers and agents can recover up to 50% of their costs; and a broad-based public relations effort.
Prevention works
If NFIP has learned one lesson from recent flooding events, Howard says, it's that prevention works. "The NFIP is about preventing damage," she declares. "Through FEMA's Project Impact: Building Disaster Resistant Communities, we are encouraging communities across the country to assess their risk, identify their vulnerabilities, and take steps to prevent damage before disaster strikes. Through Project Impact, NFIP, and our Hazard Mitigation Grant Program, we are changing the way America deals with disasters. In the past six years, FEMA has purchased and relocated over 22,000 properties from flood risk areas around the country. We have moved homes, businesses, and in some instances entire communities out of harm's way."
The financial impact of these initiatives is impressive. "We are saving taxpayers over $1 billion a year because of flood losses that are being avoided as a result of the National Flood Insurance Program," Howard says. "This is happening because in exchange for the availability of national flood insurance, communities agree to adopt and enforce responsible floodplain management ordinances that regulate new development in flood hazard areas. What this does is guide development away from high flood risk areas and promote safer construction techniques. We know that NFIP construction standards work. Structures built to these higher standards are over 80% less likely to be damaged in a flood."
Agent on the front lines
An independent agent who's openly enthusiastic about the National Flood Insurance Program is Denis Miller, a principal in the Heli H. Miller Insurance Agency located in the oceanfront community of Long Beach, New York. The agency, which arranges flood insurance for several hundred policyholders, last year received the Federal Insurance Administration's Agency of the Year Award for 1999, one of only three agencies nationwide to be selected for the honor. The award acknowledges an agency's intensive marketing strategies, superior growth, adherence to established underwriting guidelines, and participation in flood awareness activities.
A key reason for his success in persuading clients in his oceanfront marketing area to purchase flood insurance, Miller says, is his efforts to educate both clients and the community about the need to protect themselves with flood coverage. "I try to explain to my clients that the peril of flood is not covered by typical homeowners policies and most commercial property policies," he says. "If I do that, I've done my job."
What's it like to do business with the National Flood Insurance Program? "Doing business with NFIP is great; it's the same as doing business with private carriers," responds Miller, whose agency represents such WYO insurers as First Community Insurance Company and Travelers Property Casualty. "NFIP dedicates itself to giving agents the best information. I was able to download the entire flood manual from the FEMA Web site--and I actually read the manual. I use it to rate flood policies, and it also has information about flood zones and elevations I can use to help my insureds lower their premiums." Miller is equally enthusiastic about NFIP's agent education program. "I attended a flood conference in Texas, and I'd recommend it highly," he says. "It was fantastic--a great chance to learn and to meet FEMA people."
Marketing opportunities
When Congress passed the National Flood Insurance Reform Act of 1994, requiring federally backed mortgage lenders to obtain proof of flood insurance on properties they finance, Miller said, many of his clients at first were angry. For his agency, though, the new law presented a sales opportunity. "At the time, most agents didn't know how to write flood policies. We used our expertise to arrange the coverage and establish ourselves as experts."
NFIP's national advertising program also is generating sales opportunities, Miller notes. "They advertised on the World Series, Spin City, The Weather Channel. People in my area--Fire Island to Staten Island--know sooner that they need flood insurance. People still don't want to carry it, but they know they must. A lot of people I talk to aren't in a flood zone and don't want to buy flood coverage. I tell them it's cheap in their area--$350 a year for $250,000 of coverage on the building and $100,000 on contents. I say, 'This is your biggest asset. There's a lot of development going on here, and storm trends are changing. More floods are now happening in non-flood zones than in flood zones.'" How do clients respond to this approach? "Two people out of 10 will buy the coverage although they're not required to," Miller replies, "and any client who doesn't buy it must sign a form saying flood insurance was offered and he or she declined it. I push it--not for the $30 commission, but because I know I'm really doing a good thing for my clients."
Among other good things Miller does, he conducts seminars and writes articles to educate clients and prospects about flood risks and coverages. Thanks to his efforts, he says, "We almost double our flood volume every year. Although Travelers had suggested he apply for the Agency of the Year Award, winning it came as a total surprise to Miller. "I read about it in the NFIP magazine," he says with a chuckle. "Travelers had never had an award winner before, and we were all happy about it. It created a great feeling here in Long Beach, because everyone knows the Miller Agency helps people."
Helping people--with risk identification, flood prevention, and affordable insurance coverage--is what NFIP is all about. Its public-private partnership succeeds in large part because it draws on the unique contributions of everyone involved--insurers, agents, and communities. As an NFIP slogan says, "Life may not be waterproof, but your insurance policy should be." *
For more information:
National Flood Insurance Program
Web site: www.fema.gov/nfip
NFIP Servicing Agent (for direct business): (800) 638-6620
NFIP Agent Leads Program: (800) 720-1093
Heli H. Miller Insurance Agency
Web site: www.floodagent.com