Knowledge Center

Knowledge Center Items Podcast Episode 21

How to Turn the Tables and Quote More Flood

Published on

Did you know your clients are twice as likely to have a flood damage their property than a fire? 

If you did, there's a good chance you would be quoting a flood policy every chance you got. 

The problem, up until now, has been the amount of time and effort it took to actually get it done. 

Thankfully, that's a thing of the past and now you only need three extra questions to provide better coverage. 

Tom King, Hiscox Property Underwriter, talks about that process and how you can take advantage of it.

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Full Episode Transcript

Joey Giangola: Mr. Tom King, how you doing today, sir?

Tom King: I am very well, thank you. We're getting on okay across the pond here in London. How are you doing, Joey?

Joey Giangola: Tom, I'm doing alright. I don't know that anybody asks me how I'm doing on all of these episodes, so thank you for being polite. I appreciate that. I do have to ask this though, because you kind of already did it right in the opening. I'm curious if there's an American phrase that you wish you could pull off with your sort of English, as I say, accent. Because I hear you guys talking to me, and man, that sounds so cool and nice and elegant and then... Is there something that you hear from us that you're like, man, I wish I could pull that off?

Tom King: Yes. So I actually spent three months living in Charleston a couple of years ago, working with one of our MGA partners there. And the one phrase that I could never pull off, it never sounds right, is the famous y'all.

Joey Giangola: Oh.

Tom King: So we don't have a replacement for that in our language. We have you all, you guys. It just doesn't sound right. And we don't have a replacement, so me saying it just sounds absolutely absurd.

Joey Giangola: Well don't beat yourself up too much about it, because I think that's even more specific to the South, because I can't pull it off. I can't say y'all and make it sound work, because it's very specific. So I wouldn't beat yourself up too much. But I just I wish I could say cheers and brilliant and have it make sense, but I can't and I wish. I tried, it doesn't work for me, but I guess we can be envious of each other in those aspects. But speaking of something a little bit more seriously, Tom, what's going on in the world of flood? What are you seeing? What is happening that has you excited that you do feel confident talking about?

Tom King: Yeah. So obviously it's an exciting time. Well, when's not an exciting time for flood? Plenty of flood events taking place by us all the time in the U.S. We're well into the hurricane season now. I can't believe it's August and we're coming down to, is it J through the alphabet on the name storms, which is, this time of year, is absolutely crazy. We're keeping an eye on things and making sure we're being reactive with our moratoriums and our exposures. But yeah, it's actually a really exciting time for flood.

Tom King: It's one of the questions everyone keeps asking is how is COVID impacted flood? And the short answer is that it hasn't really. We had a slow down sort of at the beginning of lockdown, I guess because a lot of our flood purchases tied to mortgage lending, home closings. And when it was sort of true lockdown, people weren't really moving homes. So there was definitely a slow down in the number of quotes or binds we were getting there. But we're well out the other side now. Like we said, wind season is in full flow. And also all of those loan closings and moving that everyone kind of put on hold, put on ice, is now taking place. So they're actually all bunched together. So we've probably had one of our biggest months in terms of quotes and binds. Biggest in July and it's looking even bigger now for August. So yeah, it is really exciting times.

Tom King: There's a lot going on with the NFIP as well, which actually should have been coming up on October 2020, so a couple of months' time. They were bringing out their Risk Rating 2.0, which is going to have a huge impact on the NFIP, private flood. That's actually been pushed back to October 2021 now. So it's a bit more time with that for us to have a think about what's going to happen, how it's going to work, get our head around it, and react to that as well.

Joey Giangola: Yeah, I mean, so do you think... We're dealing with a kind of an influx that you said you're seeing great numbers for July and August. Do you think that's because it was sort of pent up over the last three, four months with everybody not being able to, you said, get around and buy new houses? Is that what you think has kind of led to these numbers being big for you right now?

Tom King: Yeah, I think that's probably the main driver behind it. Given that still for private floods and just flood purchase generally in the U.S. is linked to those special flood hazard zones, the [inaudible] to V zones, where it is a mandatory purchase alongside your mortgage. So that's where we see the most business. So the fact that people weren't moving once during those loans is an impact. I guess for us as well, FloodPlus is a private flood provider. Just over time and, not necessarily this year, but over the last three to four years, the familiarity for agents, for insurers, with private market for flood in that there is this alternative option to the NFIP, has just driven business our way every time.

Joey Giangola: Yeah. That's a good point because there is a lack of awareness, I would say, from the actual person buying the home on an almost criminal level, but then even more so from the agent level. What do you think some of those challenges are in understanding flood, right? What are people getting wrong about flood and why are agents either sort of committed to selling it or just sort of really don't want anything to do with it? What's going on with that?

Tom King: Yeah. Sort of two parts of the answer here. In terms of misconceptions and challenges for agents is, one is around floods as a peril itself. And the fact that I guess flood is a common peril in the U.S. as I said. I think it's the most widespread natural disaster aside from wildfire in the U.S. and 90% of all U.S. natural disasters declared by the president involve some sort of flooding. Yeah. Flood damage is not... Well it was almost never covered on homeowners insurance as standard. So I think it's important for people to know that flood insurance is important for people, whether in a high risk zone or a low risk zone. Flood is an important peril to have covered.

Tom King :Over the course of a 30-year mortgage, a homeowner in a 100-year floodplain has a one in four chance or greater of being flooded. So that's twice the probability of fire damage. Yet people don't necessarily think of that as a peril to cover. I know in the 100-year floodplains, you have to buy it for your mortgage, but when you start thinking about the return periods and how long your mortgage is and suddenly you go, "Oh right, actually, I might be in this 100-year floodplain, but over the course of my mortgage, I'm quite likely to have a flood."

Tom King: In the second part is just around, like we say, these zones and the NFIP. So in designation, recent events have just shown the inadequacy of many of the FEMA flood zone classifications. So there's a wide potential for insured or uninsured exposures for policy holders. I was having a look at some stats earlier, and 20% of all claims received by the NFIP are in properties located outside A and V zones, so outside of the special flood hazard areas. So there is exposure there and just because you're not in this zone where FEMA has drawn a line in the sand and said, however long it will go... well when they they did the zone designation, they go, "Right, you have that 1% probability of flood peril each and every year." That is changing. As we know, the climate is changing, the frequency of natural hazards seems to be increasing, there's global warming, sea levels. All of these things are changing. [crosstalk]

Joey Giangola: Well, I'm still trying to get over, like you said, you're twice as likely to have a flood than you would a fire. I think even just starting from that standpoint, people, if you ask them, "What are you worried about?" Maybe it's some wind damage or thing, and then maybe it's fire, right? And then flood's probably somewhere down on the list there. Talk about what happens when we're actually dealing with the water coming in the house, because I don't think people even... Knowing that they're twice as likely to have a flood, what are we talking dollars and cents wise when water is actually in the house? Because I don't think that there's also that sort of connection in terms of the financial implications that even just a little bit of water can have.

Tom King: Yeah. What we've been doing, we're writing our flood program, FloodPlus, for kind of four or five years now. And over that time, we've written flood through a number of storms. So our claims experience... We have had a claims experience and just looking at those numbers coming in, we've been able to sort of get a good idea of how much it is. We think roughly in a non-CAT event, is around $15,000 of damage in a flood event. In a CAT event, then that doubles to about $30,000. So that's sort of based on our data, where we've been selective on the risks we've taken, and we generally write better flood risks. We're more selective in the private market. The NFIP themselves, actually they've said that one inch of water can result in $10,000 worth of damage. And another company called FloodSmart said that a 2,000 square foot home with footer damage could cost more than $50,000.

Tom King: So there's a lot of different numbers, but sort of where it is, is anything from $10,000 upward, if the NFIP experience has said that. So just one inch of water in your home can be a significant event. You've got to think, flood water is not just water running off the river or from the sea. It's contaminated water. It's often carrying debris, mud, sewage in lots of cases. So as soon as any of that water goes into your home, it's suddenly a serious cleanup job. We've had claims examples where we've had just a few inches of flooding going into a home and that's resulted in pretty much total lost to contents on that floor, especially if the water doesn't recede straightaway and sits in the home. It can just sit there. That affects it, there's mold growth. We've had some pretty serious and large losses from [inaudible] sewage water sitting in the home.

Joey Giangola: Yeah. Like you said, it's something that is fairly likely in terms of just the general risks your property faces. What do you think is maybe stopping agents from quoting it more often because it's, like you said, agents either tend to focus on it or they don't really want to mess with it at all, some dabble, but that's, in my experience, that's generally not the case. Is it just maybe a lack of familiarity or is there something that is kind of stopping them from offering a quote on every homeowners policy that they're handing out?

Tom King: So I think there definitely is a lack of familiarity, especially with the private flood market and the product offering and what that can bring an agent, what they can offer the insured with it. Traditionally with flood, most agents and most people purchase flood through the NFIP. The private market is really small compared to it. But getting a quote through the NFIP is really tedious. I did it once. I did it on the NFIP site and there were... As sort of not an agent, inexperienced, it took me about half an hour of various questions. And the question set is just huge. I don't know the exact number, but it's 50, 60 upwards questions. So it can be... And like I said if you're an agent and you're not used to quoting flood, that can be quite overwhelming. You might not necessarily have the information.

Tom King: Whereas I guess what we've done at FloodPlus is we've really stripped back that question set. We ask between 12 or 15 questions, depending on the facts of the building. A lot of those that are actually the questions you would ask anyway on a homeowners app. So things like obviously your RCV, but then your occupancy, your construction type, your year built. So what we've tried to do is make it as easy as possible. The thing that is slightly different is then we ask questions around the foundation type, elevation to the lowest level floor and obviously private flood losses. So that's information that the agent might not necessarily have at the time of posting the homeowners. So something we're working on how we can get around that, but at the moment, an agent would have to then go and ask the insured. But realistically, it's only three extra questions, or three or four extra questions alongside the homeowners to get that wider, rounded off coverage with no gaps in cover for a flood event that you don't have in the homeowners.

Joey Giangola: Yeah. I mean if you made it part of your overall process, right, I'm just going to get these three extra pieces of information to have it presented, right? It's not an overwhelming amount. I mean, I'm assuming you guys have seen success with that stripped down set of questions in terms of, like you said, just simplifying the process, right?

Tom King: Oh yeah, definitely. We completely understand. I know we're sort of the other side of the Atlantic, the London in Lloyd's. There is that sort of a disconnect. We're not as close to the agents, but we get a lot of feedback from the cover holders and actually agents directly as well, which we love to hear any feedback on the product, the process from agents. Because it just helps us make the product better. But yeah, the feedback that we've had is that having that stripped back question set makes it easier. We understand that agents are busy. They have a lot on their plate. They've got a lot of quotes to do. And if a homeowner comes, especially if it's renewal and they can get that renewal out quickly for the customer, quoting the flood can be something that slows down that process. So we want to make that easy. I guess generally the feedback we have had is that now the question set we have, especially the crossover on information available already, does make that easy.

Joey Giangola: Yeah. And that's the one thing that I think I'm most excited about is seeing that sort of transition to where you do have these, me calling it a fringe coverage would be doing it a little disservice, but things that are generally not thought of as something you're going to add onto the policy, where it's being streamlined to the point where it's... Because agents are always fighting profitability, right? How much is the premium? How much time am I going to have to take? What commission am I going to get? And if those things don't add up, it's a tough sell, right? So getting it to a place where the time makes sense, the premiums in line and it's a coverage that is actually going to, at some point, maybe be worthwhile. Because the last thing you want is to not spend the time to get the answer to the extra three questions, have some water end up in a basement that didn't come from with inside the house. And it be a very important client that has multiple lines of business with you. That's just not a good position to be in, right?

Tom King: No. The conversation you will be having when it comes to renewal time, when they've had the uninsured loss, is probably going to take up a lot more time than it would have having created the flood in the first instance. But I think so much of it as well, it's not just sort of the agent, it's the education piece as well. We need the awareness of the flood risk for each individual insured. We need to do a lot more work around that so that the agent's aware of the flood risk and can ensure themselves this is where the flood risk is and stop thinking about these, like I said, these flood zones that actually we found to be not that accurate anyway. So I think a great example of this is Hurricane Harvey. And so 80% of the victims or flooded homes in Harvey didn't have any flood insurance and that's a huge, huge amount. And it all comes back to these flood zones.

Tom King: So 70% of the homes flooded in Harris County were outside of the regulated 100-year floodplain. So these were X's, these were people who were told or have always known because of their flood zone that they thought they're outside of a flood risk, because they're not a designated special flood hazard area. They're not a V zone or an A zone. They have less than a 1% any chance of any flooding. Might have lived there for 40, 50 years and never had a flood. So everything's pointing and saying, "Oh, well, we don't need to buy floods because [inaudible] FEMA and the NFIP telling me we're not going to flood. I've never experienced it. So why would I spend $350?" But actually this has changed, whether there's new buildings or anything can affect the way that, in a flood event, can be more severe because of weather changes, if there's change in the urbanization, new buildings. So much of Houston is now concrete. There's less places for the flood water to go. And sadly for a lot of these homeowners, they only learn after the storm what their actual exposed risk is.

Joey Giangola: If you can maybe boil it down to maybe one thing for agents to wrap their head around, just the overall risk of flood or just to bring to their clients in terms of the overall importance of... Is there something that you would set as a peace offering, like, here, this is this thing. I'm giving you my olive branch of one thing to consider when you're having these conversations with your clients.

Tom King: I think just one of the things to consider with flood is there are so many ways in which your home can flood. So whether it's storm surge... You're coastal, so hurricane or other storm like we saw with Michael or Katrina or Sandy. You've got dam or levee failure. We saw that earlier this year in Michigan, where one of the dams failed further down the stream, not actually that close to the dam, just the water coming down flooded homes. Up in the north, you've got the snow melt, you've got ice jamming, you've got regional flash flooding, whether it's from rainfall or from hurricane rainfall, snowfall, other local rainfall. So there are so many ways in which your home can flood. And to be honest, no matter what zone you're in, if you get half a foot of rain in a couple of hours, there is going to be flooding.

Tom King: And at the moment, unless you are in an A or V zone, which I don't know the exact percentage off the top of my head, but so little of the homes and businesses within the U.S. are within those zones, you will not be covered. So I think that's the thing is, what do you want from your insurance as an insured? You want total protection. You want that peace of mind that I will be indemnified and put back in the exact position I was in before this event. And I can carry on with my life as it was before. And without that flood cover, you are leaving yourself exposed to this huge devastating peril.

Joey Giangola: Yeah, Tom, I know anytime that I had somebody call up and tell me that they had water in their basement, I definitely had a mini panic attack because the likelihood of it being covered... I had to go through quite a few hoops to kind of get to that point where, okay, we're in a good spot here. But we have two more questions for you, Tom. And I'm curious from your perspective, being in the industry, what do you think is maybe right around the corner outside of that increased education and awareness? Where are we heading with flood that you're kind of really excited about? What should we be paying attention to?

Tom King: I think I touched on it before, is the sort of changes that are going to be happening with the NFIP. So without talking too much [inaudible] the NFIP. We know that they have billions of dollars of accumulated debt, is something that isn't fundamentally working with the way that they're pricing. So I've said the NFIP announced this major change to their price and formula. So they're going to move away from this sort of zonal rating to rates that are based more on an accurate assessment of the real flood threat to a home and at a price that reflects the cost of rebuilding the home. So this is this new Risk Rating 2.0. It had been set for this year and pushed back to next year, but that will encompass all flood risks, so single family homes, multi-family, commercial. It's all being rolled out at the same time.

Tom King: With the NFIP moving towards rates that are... What they've said is the rates are going to be easier to understand, they're going to better reflect the property's flood risk, and it should make it significantly easier for agents to price and sell policies. And I guess in turn, allow customers to understand this flood risk and the importance of insurance. So we're excited about it. We're not necessarily... I know we compete with the NFIP, but we're all sort of in this world of flood insurance together. And I'm hopeful that Risk Rating 2.0 is just going to lead to more transparency from the NFIP in terms of pricing, why risk is rated in such a way. And this transparency is... We hope it's going to increase the take up of flood insurance for homeowners and especially those who might not support it in the past.

Tom King: Where we fit in that as a private market, so we still have the advantage of having the broader cover and higher limits than the NFIP. It's not necessarily known at the moment how the NFIP and 2.0 is going to overhaul that and how they're going to compete in these areas. So that's things, like, we do offer contents covering the basement, we offer full replacement on the building up to $1.25 million, whereas the NFIP is $250,000. Full contents as well, whereas the NFIP is a $100,000 supplement, so small things like that, obviously, on a full value product, lots of use cover, other structures. So many of these things that help us stand out... No need for the elevation certificate, seven-day wait periods, rather than the 30 on the NFIP. There are lots of these broader things which set us apart from the NFIP, but definitely if they are changing the way that they're rating and almost enhancing their product, it's going to be a positive for agents, insurers and the flood insurance industry as a whole.

Joey Giangola: Yeah, it definitely makes sense. All right, Tom, last question to you. We're going to take flood out of it if you want, but I'm going to hand you a magic wand of sorts that you can do anything you want, reshape any area of insurance that you see fit. What's that thing that you're doing and where's it going?

Tom King: So that's a really good question, especially with what's happened. I think we're actually seeing this magic wand starting to wave over here in London at the moment with just Lloyd's of London. So I joined Hiscox about five years ago and a couple of weeks now actually, and it was my first job in insurance. I stepped in, came into Lloyd's of London. I was, like, this is so different to what I expected. The efficiency is, like, everyone queuing at the box. Most of your agents would have seen posters of Lloyd's and people going in with their slips of paper and underwriters signing it off. It just seems so inefficient and not the way that insurance was... It just didn't feel... Every other industry is so much ahead of it. I would just love to see more of a move in insurance to just automating, going e-trading, online.

Tom King: And it's actually what we've done with FloodPlus, using computers, using models and bringing it through to the 21st century, where every other industry has been for the last 10, 20 years. So I think that's what I'd like to see. There's so many now with the models, you have, the sorts of programs. Even during lockdown, we've been, obviously we haven't been able to go into Lloyd's, haven't been able to go to the box, but just being able to use things like e-stamps, and just being able to do scratch a policy or anything that way has just been so powerful. It just means that the efficiencies within Lloyd's and insurance, it just means that there's so much more time spent developing new products and enhancing your pricing and thinking outside the box. So I think that would be my magic wand. And I've said it, I think it's starting to wave already. If we could just wave it a little bit harder, maybe in 5, 10 years time, we'll be completely through to that.

Joey Giangola: Tom, this has been fantastic. I'm going to leave [inaudible] Thanks a lot.

Tom King: Yeah, that's all right. Thank you very much for your time.

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