Dealing with flood insurance: customer service is key.

HAS THIS HAPPENED TO YOU? YOU'RE writing a mortgage loan and you determine that your client needs flood insurance. You are running through the terms of the mortgage and you mention to the client that he or she is required to get flood insurance. "Flood insurance," your client exclaims, "What do I need flood insurance for? I've never had it before. Why do I need it now?"

There is a lot to know when it comes to flood insurance. To manage your client's flood-insurance needs, you can either choose to know just enough to get by or you can take the opportunity to become a master of customer service by increasing your overall knowledge so that you feel confident dealing with clients' questions.

Flood-insurance basics

How can you step up your customer-service game? Master the basics of the program. The National Flood Insurance Program (NFIP), which is managed by the U.S. Department of Homeland Security's Federal Emergency Management Agency (FEMA), offers the following tips for lenders:

* Know that flood insurance is mandatory for buildings in high-risk flood areas, called special flood hazard areas (SFHAs). SFHAs are based on the flood-insurance-rate maps (FIRMs) that belong to each community. This federal requirement exists for all mortgage loans originated by a federally regulated primary lender and secondary market entities.

* Know that lenders are responsible for the accuracy of the zone determination. Even if you use a flood-determination company, remember that you are ultimately responsible--so you need to understand the rules and regulations, and maps and zones.

* Request flood-zone-determination reports on the standard flood-hazard-determination form and maintain a copy of the report in your files. It is also a good idea to give a copy of the report to borrowers so they can share it with their insurance agent.

* Make sure you comply with the minimum requirements under the law. Lenders must require flood insurance purchased in an amount that covers the lesser of the outstanding principal balance of the loan(s) or the maximum amount of coverage allowed for the type of property under the NFIP. Remember that flood-insurance coverage is limited to the insurable value of the building. The value of the land should not be included in the calculation.

* Notify borrowers in writing of the requirement to purchase and maintain flood insurance for new and existing loans.

* Notify the insurance company or agent when the lender or servicer of a loan changes, to ensure that flood insurance coverage is maintained for the term of the loan.

While most flood-insurance policies take 30 days to take effect, there is no waiting period for flood insurance when it is purchased in connection with the making, increasing, renewing or extending of a loan.

FEMA encourages lenders to follow the same practice in calculating the required flood-insurance coverage amount on a building as they do in requiring the amount of hazard insurance. Remember that buildings in high-flood-risk areas are about three times more likely to experience a flood than a fire.

Turn a negative reaction into a positive

It is most important to make your customers feel at ease by letting them know you are following the law when you facilitate their flood-insurance needs. Despite what some homeowners think, it is not true that FEMA is making them get flood insurance. FEMA is responsible for administering the National Flood Insurance Program and for creating flood maps delineating flood zones. If you let your customers know they are at risk for flooding and that flood insurance offers some protection against financial losses, they will see it as a positive and they will view you as an adviser they can trust.

An essential resource for lenders, the Mandatory Purchase of Flood Insurance Guidelines (also known as the Yellow Book), is available online at www.fema.gov/nfip/mpurfi.shtm or by calling [phone].

Flood maps are changing nationwide

After you have a handle on the basics, you can build on that knowledge by keeping up with changes affecting flood insurance in your area. It is important to know that FEMA is working with local communities to update flood-hazard maps. The multiyear, nationwide project, called Map Modernization, will update flood-insurance rate maps and provide easier access to the data. Most of the country's flood maps are more than 10 years old, and physical changes in the floodplains caused by land use, development, erosion and natural forces have caused them to be out-of-date.

Having the correct information about map changes is important to providing the best customer service to your clients. In areas where a flood risk increases, most policyholders or new property owners can be "grandfathered." This means they will be charged rates based on their previous flood-zone and/or base-flood elevation. New homebuyers may be able to save money by having the previous owner transfer an existing flood-insurance policy to the new owner and then maintaining "continuous coverage," and not allowing the insurance to lapse.

There may be times when the new maps indicate that the flood risk has been reduced such that there is no longer a federal requirement to maintain flood insurance. That doesn't mean the risk has been removed; it has just been reduced. Consumers in those areas will be eligible for flood-insurance protection at relatively low cost.

To learn whether maps will be changing in your customer's area, you can check with the local floodplain office or zoning departments. To learn more about which counties are scheduled to have their flood-insurance rate maps updated, visit FEMA's Web site at www.fema.gov/fhm/mh_main.shtm.

Your company can also prepare for map changes by working with your flood-zone-determination company. It is also a good idea to know how your determination company does business, and to ask how it plans to handle map changes.

Becoming FloodSmart

What else can you do to ensure that you and your staff are fully informed about flood insurance? Consider making flood-insurance education a priority in your company, retain expert staff and take advantage of new education resources such as FloodSmart.

FloodSmart is the NFIP's campaign to educate consumers, agents, lenders and other stakeholders about flood insurance. The campaign includes TV ads, direct-mail, public relations and a Web site (www.floodsmart.gov). The site is a great resource to share with your customers. It is an approachable, consumer-friendly resource people can use to determine their property's flood risk, locate an agent and learn the basics about flood insurance. Take a look; the more you know about flood insurance, the more easily you can put your customers at ease during the mortgage process.

Lenders, brokers and loan originators can also take advantage of NFIP's training sessions, listed at www.fema.gov/nfip/wshops.shtm.

Another way to improve your customer-service capabilities is to work in sync with local insurance agents. Have you ever told a client that he or she is required to obtain flood insurance, only to find out that an insurance agent told the client something different? Consumers often misunderstand the basics of flood insurance, so it is important that you take the lead in dispelling misinformation and putting your clients at ease while protecting them by administering the program correctly.

By going the extra mile to educate yourself and your staff about flood insurance, you will stand out to customers as a trusted resource during their home-buying process.

Lena Thompson is a lender compliance officer with the National Flood Insurance Program (NFIP) in Washington, D.C. She can be reached at [e-mail]. Mike Moye, president of the National Lenders' Insurance Council (NLIC) based in Leesburg, Virginia, and Tuula Young, a program specialist with NFIP, also contributed to this column.