Before the flood: agents need to advise insureds that someday a hard rain could befall them.

With the flood damage wrought by the 2005 hurricane season still fresh in the minds of many Americans, insurance agents can remind their clients that--no matter how safe their neighborhoods may appear--everyone lives in a flood zone.

While there are different levels of flood risk, every home can be vulnerable. Customers who live in homes on hills and mountains may find this hard to believe, but agents can explain that heavy rain may cause mudflows that can damage even their homes.

According to the National Flood Insurance Program, one out of every four of its claims is filed outside a high-risk flood hazard area. An NFIP study conducted by the Rand Corporation notes that only 1% of homeowners living outside high-risk flood hazard areas, and only 49% of all United States single-family homes in these hazard areas, purchase flood insurance.

This lack of coverage suggests that many homeowners either incorrectly assume their homeowners insurance policy covers their homes against flood damage, or they are willing to take their chances. Another explanation is the misconception that the Federal Emergency Management Agency will bail out flood victims. Agents can explain that this source of government financial aid is merely a loan that homeowners will need to repay.

Until recently, homeowners who did, in fact, choose to purchase flood insurance could often only obtain NFIP primary coverage and purchase excess coverage through a handful of private insurers. These limited offerings may leave many homeowners, especially the affluent, vulnerable to large coverage gaps. For example, NFIP flood coverage only responds when at least two acres or two adjacent properties are flooded.

The biggest gaps are the NFIP's limitation of $250,000 of coverage for a house or condominium and $100,000 for its contents. These low limits often are not enough to cover the cost of rebuilding many typical homes. In addition, when a flood damages a large number of properties in a particular area, the rapid surge in demand for construction materials and contractors can inflate the cost of home reconstruction, in some cases for years after the event.

Even if a flood only damages a client's basement, the contents coverage applies only to a handful of items such as washers, dryers and food freezers. Items such as fitness equipment, home theaters and personal computers would not be covered. In addition to this coverage gap, the NFIP provides only a total of $2,500 of coverage for all special classes of contents, including fine arts, collectibles, jewelry, furs and business property.

Not only does the NFIP offer many policyholders limited coverage, the program itself doesn't satisfy a fundamental obligation insurers have to reserve adequate capital to pay claims. According to testimony delivered to the U.S. Senate by Robert Hartwig, chief economist of the Insurance Information Institute, the NFIP must now borrow between $10 billion and $30 billion from the U.S. Treasury just to cover its 2005 flood claims. Hartwig also noted that for the NFIP to be an effective insurance resource, it must charge homeowners actuarially sound premiums, increase homeowner participation, create new flood maps and catastrophe models, and build adequate loss reserves.

Even if the government does decide to drastically overhaul its program, how long will it take and to what extent will it do so? This restructuring could take years, and these changes wouldn't even remedy the program's substantial coverage gaps.

Fortunately, private sector solutions are developing. When the NFIP was created in 1968, the private insurance industry was not strong enough to insure flood risk, which was viewed as unpredictable. As the industry has grown stronger, it has developed the capacity to expand traditional property coverage to include coverage for flood risk.

Not only do these new insurance programs offer substantially higher limits and broader coverage features at a cost comparable to the NFIP, they also enable clients to have all their homeowners coverage with one carrier. In addition to including a less restrictive "flood" definition, these new policies can provide coverage for mudflows caused by heavy rain and flooding, replacement costs, additional living expenses and refinished basements.

Discussing flood risk and comprehensive coverage options are valuable parts of any personal risk assessment and one which most clients will deeply appreciate. After all, if homeowners buy insurance coverage to protect their property from theft, fires, wind and many other exposures, why risk a flood? Don't let your clients' most valuable assets get washed away.

Andrew McElwee, a Best's Review columnist, is executive vice president of Chubb & Son and chief operating officer of Chubb Personal Insurance, Whitehouse Station, N.J. He can be reached at [e-mail].