Flood insurance in Alabama can be confusing. Many insurance agents in areas like Birmingham and Montgomery want nothing to do with it and others think people may not be in a flood zone.
After the 2019 Alabama flooding I can't tell you how many times I spoke to someone who said their insurance agent told them they were not in a flood zone.
Try explaining that to someone after they lost everything to a flood. Thats exactly what happened with people in Houston Texas and residents of Nathans Estates in Muscle Schoals Alabama.
So today we are going to look at 5 things that could cause flood insurance e and o claims to happen in Alabama.
- Building coverage
- Contents coverage
- Proper documentation
- Mistakes on application
- Cobra zones
One of the leading causes of e and o claims on flood insurance can be building coverage. Many agents either don't offer building coverage or don't offer replacement cost on the building in Alabama.
It's important to understand these because a policy could default to actual cash value if the 80% rule is not followed.
The National Flood Insurance Program generally requires either the max coverage available or 80% of the replacement cost. So for example if the replacement cost of a building is $400,000 they would require $250,000 to be on the policy.
This is also the opportunity to have excess coverage which could cover the proper replacement cost.
The next area is contents coverage. We see many policies that do not have contents coverage. This ultimately is up to the customer but many times we see where it was never offered.
Imagine losing all your personal belongings and not knowing you could have had coverage for it.
You would probably be pretty upset.
Recovering from not having contents coverage can be just as hard as recovering from not having building coverage.
Proper documentation on Alabama flood insurance policies is another area where we see alot of error and omission claims occur.
In many situations if the National Flood Insurance Program or FEMA does not receive the documentation they need they will drop coverage down.
I remember speaking with an insurance agent a few months ago. They had called us on this exact issue. The carrier had submitted some documentation to them but they did not see it in their insurance agency management system.
The customers coverage was lowered from $250,000 to $25,000. A claim occurred and to the agent and insureds surprise there was not enough coverage to cover the damages.
Some of the documentation that maybe needed is a signed application by the insured and the agent. Proof of payment, possibly an elevation certificate with color photos.
A big area we see mistakes everyday on is the application. So many times we will see agents mark a home has a basement not truly understanding how FEMA defines a basement.
If a property does not have all four sides below ground then FEMA may not consider it a basement. Things like this could cause problems during the claim process.
Lastly is writing coverage when it's not available. One big area this happens is Cobra zones and other protected areas.
Just a couple of months ago we where advising an agent in Savannah Georgia and Statesboro Georgia about these guidelines. They said well it let me write it. A couple of months later FEMA cancelled the policy for underwriting. We were able to help the client find coverage through the private flood insurance market but it was a difference of about $5000.
As you can see there are alot of things to pay attention to when setting up a flood insurance policy for a client. You want to make sure you have a good process of making sure all things are done.
Maybe you just don't want to offer flood insurance in Alabama and that is fine. We work with insurance agents across the country everyday because of our educational background in flood mitigation. Click here to learn more
Remember we have an educational background in flood mitigation so we are here to help you understand your flood insurance, flood risks, and mitigation your property long term.