(October 2004, Primary Agent)

Agents in the Spotlight
by: M. Rita Hollada, CPCU, CIC, CPIA

Passage of the Flood Reform Act of 2004 has landed agents on center stage. While the recent legislation resulted in the reauthorization of the National Flood Insurance Program through 2008, it also contains mandates that increase the responsibility of agents toward their insureds. Although the final regulations have not been determined, what is certain is that agents will be required to have more knowledge about the uniqueness of the flood insurance policy, its provisions and limitations, and will be responsible to convey that knowledge to their customers at the point of sale.

The reason that much of this language has come about is the perception among legislators that agents do not know that flood is excluded from property policies; do not know that there is a specialty program for flood; do not advise their clients of the flood risk and availability of flood insurance and do not appreciate the limited nature of the flood insurance policy. That being said, the legislators would like to fix all of these ills with one quick stroke of the pen.

The legislation calls for the establishment of minimum training and education requirements for insurance agents. The NFIP will work with state insurance departments to establish requirements appropriate to the individual state circumstances, but at a minimum, states will be encouraged to include flood insurance material in pre-licensing education and examinations, and to award CE credit for flood courses. Many states will go further and establish required continuing education in flood insurance as North Carolina and Maryland have done. For agents, the time to get this education is sooner rather than later. In the future, the agent will be responsible to convey knowledge of the scope of coverage as well as limitations and exclusions to their insureds.

The legislation also calls for the establishment of a number of point-of-sale documents. These include supplemental forms outlining in simplified format the coverage being purchased as well as an explanation of how property will be valued at the time of loss. These forms are still under development by the NFIP, but an agent would be wise to review the flood policy language with a client and point out the section that lists "property not covered." Additionally, an agent should explain that most flood coverage is paid on an actual cash value basis.

An "acknowledgement form" will also be required. Again, that form is under development but it will include a statement that the purchaser of property insurance has been advised that flood is not a covered peril and that coverage can be purchased under a separate flood insurance policy. This form should also acknowledge that the purchaser has received a copy of the standard flood insurance policy. While the logistics of these requirements are being determined, an agent can begin to secure this type of documentation by the use of an ACORD 60. This is the "Flood Insurance Notice/Rejection" optional form that includes advisory text as provided by FEMA.

A final requirement of the legislation that will affect agents is the production of a Flood Insurance Claims Handbook. This will include procedures for filing a claim and detailed information regarding the process of appealing a claim decision. Again, this handbook is in the formative stages, but when completed it will be required to be provided to each policyholder at the time of purchase and at the time of a claim. It is not certain if the agent or the company must provide this, but in the interim, it is advisable for agents to review claims procedures as outlined on the last page of the Standard Flood Insurance Policy.

There is an abundance of additional language in the Flood Insurance Reform Act of 2004, much of which affects the administration of the National Flood Insurance Program. However, the intent seems clear. Agents will be expected to take a much more active role in understanding the flood insurance product and in conveying information about it to their prospects and clients.