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By linking flood insurance with homeowners coverage, agents can protect clients, increase commissions and build a reliable income.

It's an agent's nightmare: Having to tell clients-after the fact-that damage to their property isn't covered by their insurance policy.

No agent wants to be in this situation. Although clients think they know what insurance coverage they need to protect their homes and personal property, most don't know enough-and that becomes all too clear when disaster strikes.

No matter what clients say when they purchase coverage, they expect their insurance agents to be the experts. It's an agent's responsibility to evaluate potential loss factors and present insurance options that keep clients from losing everything.

That's why linking flood insurance with homeowners coverage may be one of the best steps agents can take to ensure that their clients' homes and personal property are well-protected. It's a win-win proposition that offers many advantages for agents and clients alike; in fact, it can be one of an agent's best building blocks for creating long-term relationships. Why? Because it's a natural combination that allows an agent to demonstrate real value to clients.

What the Client Needs

There's an interesting psychology that many people exhibit when they purchase insurance. Many clients focus on getting the lowest premiums and eliminating unnecessary coverage. Their body language and tone of voice imply that they know more than they actually do. In reality, many consumers don't understand the differences in coverage between, say, a homeowners policy, a flood policy and a wind policy.

"Clients don't like to appear uninformed," said Johnny Read Sr., senior vice president of Lanier Upshaw, a property/casualty agency in Lakeland, Fla. "That's why agents have to look beyond what people are asking for and see what they really need."

In many instances, agents can increase their business significantly by changing their own role from reactive to proactive. Instead of simply responding to what customers say they want, the agent can take a more active role and present additional coverage options--such as describing the advantages of flood insurance as a companion to homeowners insurance. "If you ask clients if they want flood coverage even though their house is in a low-risk zone, naturally they're going to tell you they don't want it because they think they don't need it," Read said.

"It's a disservice not to offer flood coverage," said H.S. Toby Turner, a vice president with Lanier Upshaw, who advocates a consultancy type of sales approach. "It's the agent's job to educate the customer to the real risks of flooding. The fact is, flooding can happen anywhere, and the risk is increasing. Urban development is causing major changes in the natural drainage of land. Torrential rainfall, poor drainage systems, excessive snowmelt--they can all cause flooding."

And yet, if clients believe they don't need flood coverage, they're going to see it as an unnecessary expense. That's when the agent can work to change the customer's thinking. Staying focused on the real value of insurance will help. Insurance isn't like other purchases, such as cars or homes, that consumers buy and intend to use. When people buy insurance, they do so in the hope they'll never need it.

Policy Cost vs. Repair Cost

"Anyone who knows insurance knows that the purchase is made for peace of mind," said Stacy L. Cirillo, personal-lines manager at Iler Wall & Shonter Insurance in St. Petersburg, Fla. "It's my job to keep my clients' focus on the protection they'll need in case something catastrophic happens." With a little patience, agents can move the discussion from how much a policy costs to what it would cost to replace a home if it were damaged.

Cirillo has a sales approach that makes flood insurance especially easy to sell to customers who live outside high-risk flood zones. "When I present a homeowners quote, I automatically include flood," Cirillo said. "When a property is very close to a high-risk zone, I'll say, 'Well, you're lucky; your flood coverage is only about half as much as your neighbor's across the street, because you're in a lower-risk zone.' Then I go on to point out how much the replacement costs would be if their house did flood."

Nationally, the average flood claim is $15,000. If an agent can get clients to consider the potential cost of replacing or repairing their property without flood insurance, and compare that to the cost of flood coverage, with an average annual premium of $350, they may become much more open to purchasing a flood policy.

Setting the coverage amount is the first step in purchasing homeowners protection, and it's also a step that can help an agent sell flood insurance. Unfortunately, this is where clients and even lenders may make costly mistakes. The result may be that a client will overspend on premiums and still be underinsured.

Clients overspend when they fail to recognize that homeowners insurance is designed to cover the home's replacement value, structure and contents, not the real estate value. "Some states have been careful to legislate consumer protection in this area," said Anne Farley, personal-lines manager for Jack Rice Insurance in Largo, Fla. For example, Florida regulations state that "no mortgage lender shall require full market value for homeowners insurance," she said.

"If your client's lender requires that coverage match the frill value of the home and land, find another lender, one that requires the proper coverage amount," Farley said. "Then encourage your client to use the money they saved on homeowners to pay for a flood policy."

Clients also may end up underinsured when they mistakenly think that their homeowners policy protects them against flood damage. That's why it's important for clients to review their policies carefully, and for agents to review their coverage with them periodically. If clients have no lender requirements to meet because the mortgage is paid, they should be reminded that both homeowners and flood policies are critical to having adequate protection.

Gambling Against Nature

Clients who don't purchase flood coverage in addition to homeowners coverage are gambling with their homes, and an agent can help make them aware of the risk they're taking. Homeowners typically say flooding "will never happen" to them. But almost one-fourth of all flood insurance claims come from so-called low-risk or nonflood zones. Also, the incidence of flooding is increasing, and the risk isn't limited to coastal areas or property near lakes or rivers.

"Florida offers some important lessons for homeowners everywhere," Farley said. "Some of our worst claims occur due to out-of-season storms where pooling rainwater and poor drainage--not hurricanes--cause the problems."

Some clients will not be persuaded to take flood coverage, but there will be more opportunities for agents to link homeowners and flood sales. If a client declines an offer of flood coverage at closing, agents should consider a follow-up call 30 days later. With new homeowners, a month's delay can be just the right amount of time to get settled in and take stock of the numerous decisions that must be made at the time of purchase. This might be the time for an agent to re-focus the client on the value of flood protection. Policy renewal time also gives agents the chance to encourage clients to reassess their coverage selections and reconsider flood insurance.

Whenever clients reject flood coverage, agents should ask them to sign a form that acknowledges their decision. This step provides good protection for the agent if an errors and omissions claim ever occurs. At the same time, it gives clients one last chance to rethink the risk they are taking. "A simple statement that the client has been advised of, and understands, the limits of their homeowners coverage as it relates to flood damage is highly advisable," Read said. "It's part of the checklist that I encourage our agents to use."

It's easy to see why flood coverage is important for clients, but what does it offer agents? There are more benefits than agents may realize. Linking flood with the homeowners sale helps agents add value to their client's purchasing decision and build customer loyalty. When homeowners rates go up, some policyholders become tempted to shop agencies for a better price; but customers who have both homeowners and flood policies with the same agency may be more likely to stay.

Another point: Flood's high retention rate from year to year can help stabilize an agency's income. In addition, offering the two coverages in one sale is convenient. The agent has already collected most of the information needed to write the flood policy, so there's little additional work involved. And for most clients, flood is an easy sale, because it makes good sense.

"It's not hard to sell, but you do have to educate yourself before you can educate your clients," Cirillo of ller Wall & Shonter said. "One of the most important considerations is finding a carrier who supports the sale with software, marketing materials and fast response when you have questions."

Agents who take the time to learn about flood coverage benefit in many ways. As they add clients, commissions start to build. Turner says that with close to 100% retention, he's found that flood sales can become a solid income stream over five or six years.

"Flood sales are a helluva deal," he said. "I've found flood coverage easy to quote and easy to write. A good carrier will provide you with flood-zone determinations and all the help you need to understand policy requirements. And the federally regulated premiums have a cost-value appeal that clients just can't find on the open market."

Stephen A. Murray is senior vice president of sales and marketing for Bankers Insurance Group in St. Petersburg, Fla.