By: Nancy Germond, Executive Director of Risk Management & Education, Big "I"

Are your clients, both commercial and personal, at a greater flood risk than they know? If your clients rely solely on the Federal Emergency Management Agency (FEMA) flood maps, your clients' property may be at much higher risk than predicted by FEMA maps. According to the New York Times, FEMA maps do not account for intense rainfall-created flooding.

Climate challenges change flood risks throughout the US and abroad

Until recently, reinsurers considered flood risks “secondary perils." Primary perils are events that generate large losses and are routinely “modeled," such as earthquakes and tropical cyclones. Many carriers had considered flooding a “secondary peril," a smaller or mid-sized event. However, those days are gone, according to one expert in a recent Burns & Wilcox online seminar on flooding risks. Flood risk is a major concern to today's insurers and reinsurers.

In the U.S. according to CBS news, over 700,000 commercial real estate buildings, apartments, malls and office complexes face flooding risk in 2022 that could reduce business access and incur economic losses approaching $50 billion yearly. Homeowners, too, face significant flooding risks from rising inland waters, coastal storms, increased rainfall, and other water-related deluges.

Add increased urban infill and greater population growth along coastlines to the mix and your insureds may not recognize the risks facing them.

A New Tool to Measure Flood and Wildfire Risks

A non-profit, First Street Foundation, formed by academics and climate experts, offers a free, online tool that analyzes current flood data to predict a property's flood risk. The tool categorizes flood risk from minor to extreme. After entering an address, you will receive a “Risk Factor™" analysis, with flood-risk categories ranging from minor to extreme. The analysis includes flooding that can occur from swollen rivers, rainfall, tidal flooding, and storm surge. Enter the property location to determine its risk of flooding and wildfire.

An article in the New York Times stated that Risk Factor showed a “vast increase in [flood] risk compared with official estimates." Even updated flood maps are “decades old," according to the Times article, and Risk Factor includes areas not yet mapped in some instances. The article went on to say that even though Risk Factor may “overestimate some risks," FEMA welcomed the additional input provided by Risk Factor.

Relying Solely on FEMA Flood Maps Can Be Problematic

First Street Foundation evaluated the City of Chicago's flood risks. While FEMA maps showed that 0.3% of properties in Chicago were within the 100-year flood zone, First Street found about 13% of the Chicago properties were in danger of flooding. This was more than 75,000 properties than FEMA maps predicted.

Put your own property address in at this link to see both flood risk and wildfire risk. For example, I put in our vacation property address located in Skull Valley, Arizona (it's prettier than it sounds), population 350. While our property address did not appear, the 86338-zip code did, and I received this result.

As you can see, we're more at risk from wildfire, but flood risks could also be problematic. But wait, there's more. The model also predicts the impact of flooding on roads, commercial buildings, and critical infrastructure in that zip code.

Risk Factor is a new tool you can use to help your insureds decide on their need for flood insurance, and to evaluate their wildfire risk.

Reminding your insureds about their flood risks and coverage options

It is always prudent to remind your insureds that their property coverages do not include the risk of flooding (where applicable). Simply because their lenders do not require flood insurance does not mean their property is not at significant risk of flooding. With the summer monsoon season and hurricane season ahead, reminding your insureds of flood coverage limitations can help protect your agency in the event of a claim involving surface water.

Additionally, National Flood Insurance policies may not provide adequate coverage for your clients' property values, especially considering recent greatly increased construction costs.

Risks of flooding and wildfire are two great reasons to reach out to your insureds

With the increase in flooding risks, you can protect yourself and your agency by recommending flood insurance with every property policy you place, even if the lender does not require flood insurance. Reminding your clients at policy inception and at policy renewal that no flood coverage applies under the homeowners policy, or the commercial property policy, can help guard you against a professional liability claim.

This article was originally published on independentagent.com in May.

By: Bill Wilson, Founder & CEO of InsuranceCommentary.com

Your 20-year-old daughter is away at college. She does not have a car on campus, but her roommate does and she drives the auto occasionally. Would your unendorsed personal auto policy respond if she has an accident driving the car? If not, is there anything you can do about it? You might be surprised...

Courts have generally held that students away at school are still considered to be “family members” under the PP 00 01 and, thus, are covered while operating autos at school. However, there is an important exclusion in the PAP that says [emphasis added]:

B. We do not provide Liability Coverage for the ownership, maintenance or use of:

3. Any vehicle, other than “your covered auto”,

   which is:

    a. Owned by any “family member”; or

    b. Furnished or available for the regular use of

        any “family member”.

However, this Exclusion (B.3.) does not apply to you while you are maintaining or “occupying” any vehicle which is:

    a. Owned by a “family member”; or

    b. Furnished or available for the regular use of

        a “family member”.

As you can see, IF the vehicle is “furnished or available” for the “regular use” of a “family member,” there is no coverage under the parents’ policy while the student drives the car. Without debating the issues of “furnished or available” or “regular use,” let’s assume that the student does have regular, unrestricted access to her roommate’s car. In that case, she is at the mercy of the insurance on the vehicle, if any, since her parents’ policy will not provide any coverage. Is there anything her parents can do do extend coverage to her under their policy while driving her roommate’s car? Well, speaking of the word “extend”...

ISO has an endorsement, the PP 03 06-Extended Non-Owned Coverage-Vehicles Furnished or Available For Regular Use that may provide coverage. If you’ll open this endorsement, you’ll see that it buys back several exclusions, including B.3. above. However, note the following wording from the endorsement [emphasis added]:

I. Extended Non-owned Coverage

The Extended Non-owned Coverage provided by this endorsement does not afford coverage under Part A and Part B of the Policy for any accident involving:

A. A vehicle owned by an individual named in the Schedule or in the Declarations;

B. A vehicle owned by a “family member” or

C. A temporary substitute vehicle for such owned vehicle described in A. or B. above.

So, even though this endorsement provides coverage to family members for vehicles furnished or available for their regular use, it does not provide coverage IF the vehicle is owned “by a member of the same household.” Exclusion B.3. in the PAP applies to vehicles owned by family members but not scheduled on the parents’ policy and also to vehicles furnished or available for the regular use of family members (e.g., a company car). What Item I. in the endorsement means is that the coverage provided by the endorsement only buys back the “furnished or available” part of Exclusion B.3. and coverage still does not apply to vehicles owned by a member of the same household. How does this apply to the college roommate situation?

On at least one occasion (and probably more), a claim involving a college student’s roommate’s car was denied under the PP 03 06. According to the insurer, the roommate was a “member of the same household.” But, is this true? Do two college student sharing a dorm room constitute a “household?”  In deciding the coverage issue, we must examine what is meant by a “household.”

According to Black’s Law Dictionary [emphasis added]:

Household, n.  A family living together.  Those who dwell under the same roof and compose a family.   Term is generally synonymous with “family” for insurance purposes, and includes those who dwell together as a family under the same roof.  Generally, the term as used in automobile policies is synonymous with “home” and “family.”

The Black’s Law discussion of “family” indicates that it is comprised of blood relatives or a close-knit social unit with a high degree or permanency, living under the control of one head of the household. I don’t think two people who possibly had never met before, spending a few months together as roommates, but otherwise being independent of each other, constitutes a family or household...i.e., just because two people share a room doesn’t make them a “household.”

What if it’s not her roommate that makes the auto regularly available, but her best friend across the hallway? Clearly, in this case, coverage applies since they aren’t roommates...or does the entire dormitory constitute a “household?” What if we’re talking about a sorority or fraternity where there is (at least theoretically) more of a “family” than a dormitory setting?

Clearly, there are no easy answers. So, the best thing to do is to discuss the situation with the company underwriter in advance. What do you think?