Farrell - in charge of the backs and the defence - helped oversee a campaign in which England conceded just four tries and was widely expected to make the permanent move to follow Lancaster.
However, citing unfinished business with the Premiership champions, the dual code international has opted to stay with Sarries - a decision Flood believes is a blow to England.
"Having played with Andy and seen how he coaches," said Flood. "He looks as though he has taken to it like a duck to water.
"The way he inspires the guys and his ability to get the best out of people will be a big loss, but I guess the RFU have a couple of other coaches in their sights.
"It was one of those things that you thought those three (Lancaster, Graham Rowntree and Farrell) would come as a package. But obviously Andy felt it was not right in terms of his evolution as a coach.
"It will be a shame not to have him there, but we still have Graham, who's an outstanding coach, and Stuart who has run the team really well."