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PIA Flood Expert Testifies at NCOIL Conference

On February 20, PIA member Rita Hollada, CPCU, CIC, CPIA, testified on behalf of PIA before the Insurance Legislators Foundation of the National Conference of...
March 1, 2003

Hollada Reminds Lawmakers Agents "Not the Police" for NFIP

On February 20, PIA member Rita Hollada, CPCU, CIC, CPIA, testified on behalf of PIA before the Insurance Legislators Foundation of the National Conference of Insurance Legislators (NCOIL) regarding the National Flood Insurance Program (NFIP). This hearing in Savannah, Georgia was one of the preliminary steps to possibly drafting a model bill for state legislators to consider. The first step in the process was NCOIL's May 2002 report entitled Rising Waters, Mounting Challenge -- Flood Prevention Protection and Assistance.

Hollada is alternating Chair of the Flood Insurance Producers National Committee (FIPNC), an industry group co-founded by PIA in 1982 that advises the federal government on the flood insurance program.

She stressed the need for educating producers on flood insurance, either as part of the pre-licensing process or through a continuing education process. She said instructors should be familiar not only with NFIP, but also with traditional insurance coverage because so many of the NFIP procedures are very different than for other insurance products. Hollada said these differences also deter some producers from writing flood insurance.

History of Program

In the 1960's, PIA (then known as the National Association of Mutual Insurance Agents) led successful efforts to create a federal insurance program providing needed flood coverage for homes and businesses. In fact, PIA members wrote the first 100 policies sold under the National Flood Insurance Program.
Today, PIA encourages its members to actively write flood insurance coverage for their clients, or at least refer their clients to qualified agencies that write this business. In doing so, agents should exercise their internal E&O procedures to document the discussions about flood insurance, the fact that coverage was offered or a referral was made, and the client's acceptance or declination of this offer.

PIA Recommends

"An NFIP elevation certificate should be completed for every property at the time of construction as part of the permit process," Hollada said. "The elevation certificate is a detriment to sales because the consumer is often eager for the coverage at the time of the inquiry, but the interest cools rapidly once they learn the inconvenience and expense of an elevation certificate. Sales are lost because of the delay that is required to obtain an elevation certificate." In addition, Hollada noted:

  • PIA supports departments of insurance granting continuing education credits (CE) for in-classroom, long-distance, and qualified self-study courses for flood insurance.
  • Carriers and vendors that write NFIP business through and with insurance producers must take an active role in providing quality underwriting, rating, processing and claims service, as well as coverage and practical education to their producers on flood insurance.
  • These programs must be directed by qualified instructors that understand both the NFIP program and the traditional private sector insurance property coverage and law environment in which flood insurance coverage, producers, carriers, lenders, determination companies, surveyors, flood plan managers and others find themselves. Many of the NFIP procedures differ substantially from the private insurance sector's regular procedures.

By way of example, Hollada highlighted the case of the net-net lease under which the tenant pays to build out the facility, pays all maintenance costs and obtains all the necessary insurance. The tenant is then unable to obtain sufficient flood insurance to cover the tenant's exposure because flood insurance must be issued in the name of the landowner. The minimal amount of flood insurance that is available to a tenant would not be sufficient to cover the loss.

"The complexity of NFIP and its substantial differences from the traditional insurance procedures serve as determents to producers' interest in, and willingness to, write flood insurance," said Hollada. "A producer following traditional insurance procedures risks E&O exposure. For example, a unique aspect of NFIP is that the underwriting is not done until a claim is filed. If the producer made a mistake on the initial policy, and perpetuated the mistake through the renewals, the policy could be determined to be void when the claim is filed even though the client has made timely payments over several years. This can result in substantial E&O exposure for the producer."

Suggested Improvements

Hollada said many of the national flood insurance program's shortcomings could be overcome through greater coordination among the stakeholders in each level of government, the financial services industry, other private sector participants and consumers. Such coordination could result in improved access to needed information, standardization of policies and procedures, and greater appreciation by each participant of the needs of all the other participants.

Hollada suggested areas where PIA believes more coordination is needed in support of the National Flood Insurance Program:

  • State and municipal government agencies need to work with NFIP through FEMA and FIMA to more thoroughly assure their understanding of, and support for, the technical needs of flood insurance risk management.

Hollada cited the example of a town that required all new residences to be built several feet above ground, per NFIP risk management criteria. Years passed, new local officials were elected. The new local officials determined that the "stilts" on which the houses were built were ugly and passed an ordinance requiring owners to build enclosures around the "stilts," in complete contravention of NFIP legal requirements. Those that would have complied with the ordinance would have been in violation of their flood policies, risking denial of coverage.

  • States and their communities must work with the federal government to update property and zone maps. State and local governments have just as much invested in the accuracy of and access to such maps.
  • States and local governments also need to work with survey employees, independent firms and independent contractors to be up-to-date on what the elements on the elevation certificate mean, how they need to be secured, and why their professional signed opinion is necessary. These governments also need to examine the extraordinary spike in elevation certificate expenses being passed on to consumers. A more expeditious approach would be to require builders to obtain the certificate as part of their regular procedures.
  • States and local governments need to work with federal agencies to secure joint funding as well as identify, detail, and place in order of importance the infrastructure improvements needed for flood prevention structures. These improvements could include levies, dikes, canals, or over-spills.

Other participants in the hearing suggested that producers be required to monitor their clients' compliance with NFIP building and maintenance requirements. Hollada reminded them that producers are not "the police" for the NFIP, do not have enforcement powers and are not reimbursed for costs associated for such inspections. Rather, she endorsed another panelist's recommendation that policyholders be required to self-certify their compliance.

Complete copy of Rita Hollada's testimony    

This article originally appeared in the March 2003 PIA Connection.

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