FLOOD INSURANCE FIRA 3 HOUR

Transcription

1 190 FLOOD INSURANCE FIRA 3 HOUR Introduction to Flood Insurance, 5 Introduction to NFIP Program, 9 The Preferred Risk Policy, 22 Standard Flood Policy, 25 Flood Policy Claims, 33 Glossary, 41 Frequently Asked Questions, 45 ipad and Tablet Users See DEMO & Links Above

2 INDEX Actual cash value v replacement 11 Additions and extensions 17 Adjuster programs 39 Agent resources 14 Appeals 34 Appurtenant structures 15 Base flood elevation 6 Basement defined 41 Basements 16 Binders 12 Blanket coverage 13 Boathouses 17 Building and contents 13 Buildings over water 16 Buildings with basements 16 Business interruption 7 Claim guidelines 37 Claims 33 Claims forms 35 Claims handbook 34 Claims history 14 Claims history, importance 14 Claims, agent responsibilities 38 Claims, insured's responsiblities 38 Coastal barrier resource system 29 Co-insurance penalty 12 Community participation 6 Container type buildings 19 Contents coverage 18 Course of construction 17 Coverage conditions 7 Covered buildings 15 Covered buildings 16 Deductibles 1 Detached garages 16 Effective date 13 Elevated buildings 16 Elevation certificate 23 Emergency program 9 Exclusions 5 Flood coverage endorsement 7 Flood insur vs disaster insur 8 Flood insurance introduction 5 Flood insurance manual 15 Flood Insurance Reform Act Flood insurance, who needs 6 Flood policy claims 33 Floodplain management criteria 11 Frequently asked questions 45 General property policy form 31 Glossary 41 Group flood policies 15 Homeowners and commercial insurance 5 Improvements and betterments 17 Increased cost of compliance 20 Ineligible property 18 Insurability 5 Limitations of private insurance 5 Loss avoidance measures 28 Manufactured homes 16 Mobile homes 16 Modslides vs mudflow 25 National Flood Insurance Prog 6 National Flood Insurance Program 9 NFIP 9 NFIP policies, types 15 Occupancy 17 Point of sale / renewal responsibilities 14 Policy statistics 10 Policy term 13 Policy terms and concellations 13 Preferred risk 15 Preferred risk deductibles 23 Preferred risk exclusions 22 Preferred risk policy 22 Presentment payment 12 Private insurers 7 Probation 11 Proof of loss 33 Property not covered 19 Property removed to safety 28 Property value determination 11 Rating 9 Residential condo 15 Residential condo association 32 Sandbags, suppplies, labor 28 Schedules building policies 16 Single building coverage 17 Special flood hazard area 6 Special high flood risk zones 6 Standard deductible 11 Standard Flood Insurance Policy 15 Standard flood policy 25 Standard flood policy coverage 25 Standard flood policy, basements 27 Standard flood policy, exclusions 30 Standard flood policy, personal property 26 Statutory coverage limits 20 Updates 51 Waiting period 13 Wind-driven rain damage 48 Write your own program 14

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4 About This Training FLOOD INSURANCE Section 207 of the Flood Insurance Reform Act of 2004 requires all producers selling flood insurance policies under the National Flood Insurance Program (NFIP) to be properly trained and educated about the NFIP to ensure producers best serve their clients. This course is a response to this requirement. An insurance producer who sells flood insurance may satisfy the minimum training and education requirements by completing this course. The failure to comply with this continuing education requirement may jeopardize a producer s authority to write insurance through the NFIP. In reviewing these materials, Particular attention should be directed to special requirements of the 2004 Act regarding your point of sale responsibilities (page 14). These new requirements underscore FEMA's clear direction of placing the insurance agent at the forefront of NFIP consumer education. Also of interest, a compilation of Frequently Asked Questions, beginning on page 45, will help in understanding the program as well as potential consumer questions that may be asked of you. Good Luck! 4

5 Chapter 1: Introduction to Flood Insurance FLOOD INSURANCE Floods can cause significant damage to property. A flood brings water, mud, contaminants and high pressure into a building, and can result in a building s total destruction. A flood can destroy a building s foundations and reshape the land on which a building rests, causing structural damage. The devastation floods can cause motivated Congress to act in 1968 to develop a National Flood Insurance Program. Limitations of Private Insurance Homeowners and Commercial Property insurance excludes coverage for damage due to flooding. For example, the following exclusion is found in the Homeowner s form: Exclusions Water Damage Water damage means: 1. flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind; 2. water which backs up through sewers or drains, or which overflows through a sump; or 3. water below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure. The Commercial Property Form excludes from its causes of loss water, including flooding, mudslide, water under the ground that seeps through floors, etc. Insurability The reason flooding is excluded from these coverages is because in order for a risk to be insurable, it must not occur to a large number of people simultaneously, or there will not be sufficient premiums collected to pay for the loss. This is also one of the reasons war is an exclusion from property policies. If a flood or a war occurs, everyone in an area is affected, and an insurer would not be able to cover the losses. Besides the difficulty of insuring for a risk that happens to many people simultaneously, another reason private flood insurance is not available is because some areas are more at risk of flooding, some areas are more susceptible to flooding than others. People living along a stretch of the Mississippi that has a history of flooding are more at risk from flood damage than those living in the middle of New York City, for example. If private flood insurance were available, the people living along the Mississippi would all want to buy it and no one living in the middle of New York City would buy it. Therefore, only high-risk insureds would purchase the coverage, causing premiums to be unaffordable for most. This condition is known as adverse selection. Because of these factors, private insurers have been unwilling to offer flood coverage. Due to mounting costs to citizens due to flooding, Congress voted to create a federal flood insurance program in 1968, under the National Flood Insurance Act. 5

6 Who Needs Flood Insurance? Flood insurance is America's most common disaster yet, as we discovered above, it is not covered by most homeowners policies. Many people don t think they need flood insurance because they believe federal disaster assistance will bail them out. But floods are not always declared a federal disaster area. And even when they are, aid is usually in the form of a loan which must be paid back with interest. Flood insurance, on the other hand, pays for all covered losses, and unlike loans, that money doesn t have to be paid back. You can cover a home s structure for up to $250,000,and its contents for up to $100,000. For businesses, structural coverage is available up to $500,000,and up to $500,000 for contents. In Special High Flood Risk Zones, defined by the Flood Disaster Protection Act of 1973, flood insurance is mandatory. If the owner does not purchase a policy for his property, his lender is required to do so and pass the cost along. Even in low risk zones, it's a good idea to purchase flood insurance for the reasons stated above. National Flood Insurance Program Under the National Flood Insurance Program (NFIP), individuals and businesses are able to purchase flood insurance at rates subsidized by the federal government. The program is administered by the Federal Emergency Management Agency (FEMA). FEMA determines the risk of flood in various locations across the United States. The areas are mapped and assigned a flood risk category. The risk of flood is based on many factors, including past history of flooding and hydraulic and hydrologic studies. In certain risk categories assigned by FEMA, known as Special Flood Hazard Areas, homeowners and businesses are required to purchase flood insurance if they use federally guaranteed financing for their buildings and property. Many private lenders also require flood insurance as a condition of a loan to businesses and homeowners in the higher risk flood zones, as well. Community Participation Special Flood Hazard Area (SFHA) A Special Flood Hazard Area is defined as a location having special flood, mudflow or erosion problems. Zones are rated by FEMA based on their relative risk of flooding. High risk zones are labelled "A" or on the coast "V". Moderate to low risk areas are rated "B, C and X". Special Hazard Zones have Base Flood Elevation or BFE assignments which greatly effect insurance rates. The BFE measures the base flood elevation in feet in relation to national benchmark data. Minimium BFE measurements must be met in order for the community to comply with FEMA's floodplain management requirements. In order to purchase flood insurance, a community must agree to participate in the National Flood Insurance Program. Any community may participate. The community must then comply with land use and flood control measures. When a community first agrees to participate in the 6

7 program, limited amounts of flood insurance coverage may be purchased. Once the community meets the program s flood control standards and a detailed flood risk study is completed, higher limits of insurance are available. Private Insurers Most flood insurance is purchased directly through the NFIP. All Property and Casualty agents are eligible to write directly with the NFIP. However, private insurers are offered incentives to provide flood insurance as well. The federal government reinsures the policies issued by private insurers for 100% of the loss. The private insurers sell the policies, collect premiums, process claims and provide servicing, and keep and invest a portion of the premiums for these activities. Difference In Conditions Coverage A business can purchase private insurance that includes flood coverage not insured by the federal government. Under the Difference in Conditions property form, a business can purchase business interruption coverage due to flooding, and can purchase flood coverage, usually on an excess basis over the flood insurance purchased through the NFIP. Difference in Conditions coverage differ from insurer to insurer in exactly how flood coverage is provided and in terms of deductibles and limits. Difference in Conditions policies are rated on an individual business basis. Business Interruption Coverage Business interruption insurance pays businesses for loss of income while property is being restored to a covered cause of loss. Items covered may include rental income, profit that would have been earned if the business had been in operation, operating expenses, and certain payroll expenses. Flood Coverage Endorsement Another coverage available to businesses is through the Flood Coverage Endorsement. The coverage is an endorsement to the Commercial Property Policy. This coverage applies as excess over the NFIP coverage, and as primary where NFIP coverage does not apply. If flood coverage is provided by a non-nfip policy, the endorsement applies on a proportionate basis, based on the limits of coverage. The Flood Coverage Endorsement does not cover flood that occurs within 72 hours of the effective date of the coverage. 7

8 The Advantage of Flood Insurance Over Disaster Assistance People often believe that if a major disaster or flood hits, the Federal Government will take care of them. Following is a comparison showing why the purchase of flood insurance is a better tactic: Flood Insurance vs. Disaster Assistance You are in control. Flood insurance claims are paid even if a disaster is not declared by the President. Most forms of federal disaster assistance require a Presidential declaration. Between 20 and 25 percent of all claims paid by the NFIP are outside Special Flood Hazard Areas. Federal disaster assistance declarations are awarded in less than 50percent of flooding incidents. There is no payback requirement. The most typical form of disaster assistance is a loan that must be repaid with interest. Flood insurance policies are continuous, and are not non-renewed or cancelled for repeat losses. The duration of a SBA disaster home loan is approximately 30 years. Flood insurance reimburses for all covered losses up to $250,000 for homes and $500,000 for businesses. The average individuals and Households Program award is only $4,000. The average cost of a $100,000 flood policy is a little more than $400 annually, or just over one dollar per day. The cost of a $50,000 flood policy may be as low as $180 annually, depending on location. Repayment on a $50,000 SBA disaster home loan is $240 a month or $2,800 annually at 4 percent interest. 8

9 FLOOD INSURANCE Chapter Two: Introduction to the National Flood Insurance Program The National Flood insurance program provides important protection to individuals and businesses across the United States. Floods are the number one natural hazard that occurs in the U.S. FEMA reports that the NFIP helps reduce flood damage by almost $1 billion per year. Community Eligibility In order to be issued a flood insurance policy, an individual must live in a community that has been designated by FEMA as participating in the National Flood Insurance Program. In recent years, FEMA s standards for designating participants have relaxed, so that more areas and building types are eligible for coverage. More than 19,000 communities participate in the NFIP program. Program Types There are two phases to the NFIP. The initial phase is the Emergency Program. During this phase, limited flood coverage is available. The second and final phase is the Regular Program, when a community has been made part of the Flood Insurance Rate Map and full flood insurance coverage is available to members of the community. Rating Rating of communities and properties in them is done through the flood mapping process. Generally, the first flood map of a community that is designated a participant in the program is a Flood Hazard Boundary Map. Then, the community is examined more thoroughly for risk of flood and a Flood Insurance Rate Map, or FIRM, is established. The FIRM contains detailed actuarial risk premium flood zones. 9

10 Policy Statistics by State as of 9/30/2004 Policies Insurance Written State Name In-force In-force whole $ Premium in-force Alaska 2, ,316,300 1,349,549 Alabama 41,336 5,697,487,100 18,435,803 Arkansas 14,788 1,279,460,000 6,426,033 American Samoa ,800 15,501 Arizona 28,602 4,797,721,700 12,382,574 California 259,961 46,960,039, ,651,186 Colorado 15,284 2,657,229,900 9,166,473 Connecticut 30,178 5,247,229,700 21,671,881 District Columbia 1, ,314, ,173 Delaware 18,142 3,120,960,200 8,873,018 Florida 1,851, ,577,962, ,979,525 Georgia 69,059 12,575,662,500 34,049,104 Guam ,645, ,500 Hawaii 48,368 6,321,521,700 15,894,240 Iowa 9,662 1,022,922,100 5,662,886 Idaho 5, ,218,500 2,578,845 Illinois 44,071 5,287,007,300 23,780,268 Indiana 26,783 2,829,133,000 14,672,362 Kansas 9,910 1,015,186,800 5,084,885 Kentucky 20,786 1,986,893,900 10,534,956 Louisiana 376,681 52,444,186, ,940,308 Massachusetts 40,214 6,988,727,000 30,570,837 Maryland 54,672 7,673,480,900 20,149,204 Maine 7,020 1,055,148,700 4,425,205 Michigan 25,142 3,112,092,000 14,003,385 Minnesota 8,109 1,138,073,900 4,314,888 Missouri 22,196 2,567,250,600 13,029,115 Mississippi 41,946 5,048,998,600 18,527,243 Montana 3, ,160,000 1,616,992 North Carolina 107,104 18,746,274,200 51,011,874 North Dakota 5, ,025,100 2,542,941 Nebraska 13,636 1,461,186,200 6,752,709 New Hampshire 5, ,578,300 3,272,513 New Jersey 187,177 32,070,969, ,921,152 New Mexico 12,449 1,372,444,900 5,577,547 Nevada 15,639 3,029,391,100 6,875,319 New York 99,007 16,971,171,700 67,209,772 Ohio 35,109 3,825,873,200 19,651,689 Oklahoma 13,688 1,468,571,700 6,493,876 Oregon 26,199 4,290,311,100 13,178,308 Pennsylvania 58,364 7,613,221,900 34,556,071 Puerto Rico 54,493 4,129,834,600 21,908,900 Rhode Island 11,732 2,007,264,600 9,618,236 South Carolina 145,585 27,906,700,900 67,109,158 South Dakota 2, ,447,300 1,615,768 10

11 Tennessee 17,265 2,377,646,500 8,832,691 Trust Terr Of Pac 1 73, Texas 455,078 81,786,336, ,443,808 Utah 2, ,108,500 1,299,743 Virginia 83,134 13,586,928,500 37,709,636 Virgin Islands 2, ,502,600 1,460,809 Vermont 2, ,862,800 1,887,843 Washington 28,752 4,473,213,300 14,689,498 Wisconsin 12,738 1,472,207,500 6,881,066 West Virginia 20,186 1,712,988,900 10,829,013 Wyoming 2, ,847,100 1,087,276 Unknown 1 49, Total 4,498, ,714,914,800 1,945,651,806 Floodplain Management Criteria In order to participate in the NFIP, a community must meet certain flood management criteria. These include meeting land use and zoning restrictions, and can include not building in certain flood prone areas. Probation If a community is in noncompliance with floodplain management criteria, it is placed on probation. Probation lasts for one year, although it may be extended. During probation, an additional $50 is charged to all NFIP policies that are issued after probation and the surcharge are in effect. Probation is terminated when deficiencies are corrected. Deductibles A standard deductible of between $500 and $1,000 is applied separately to a building and its contents, although both may be damaged in the same flood. Higher deductibles are available, and as an agent you can provide information on specific amounts of available deductibles. Optional high deductibles reduce policy premiums but will have to be approved by the mortgage lender. Property Value Determination Agents should advise clients to always purchase enough insurance to cover full replacement cost of their structures and contents. Values should not include the cost of foundations, piers or structures below the basement floor. Actual Cash Value, Replacement Cost Contents losses are always adjusted on an actual cash value basis -- replacement cost of an insured item of property at the time of loss, less depreciation. Replacement cost coverage may be available on a limited basis and up to the policy limit for single dwellings and residential 11

12 condominiums where certain conditions are met. To qualify, the building must be your principal residence, it must be owner occupied, and it must be insured at the time of the loss for at least 80% of the building s replacement cost or the maximum coverage available, whichever is less. Replacement cost coverage does not apply to apartments, commercial buildings or manufactured (i.e., mobile) homes smaller than certain dimensions specified in the policy. Losses are adjusted on a replacement cost basis for residential condominium buildings insured under the Residential Condominium Building Association Policy (RCBAP). The principal residence and the 80 percent insurance to value requirements for single-family dwellings do not apply to the RCBAP. However, coverage amounts less than 80 percent of the building's full replacement cost value at the time of loss will be subject to a co-insurance penalty. Co-Insurance Penalty The coinsurance penalty is determined by the ratio of the limit of insurance your client is carrying on the building or property to the limit the policy requires them to carry. For example, if the cost to replace a building is $100,000 and the policy requires you to insure to 100%, you should carry $100,000 on that building. If you have chosen to insure the building for $80,000, the policy will only cover 80% (80,000/100,000) of any covered loss, less the deductible. NFIP policies state that single family dwellings and residential condominiums must be insured to 80 percent of the buildings replacement cost at the time of the loss. Where the penalty applies, building loss under a RCBAP (Residential Condominium Building Association Plan) will be adjusted based on the Replacement Cost Coverage with a coinsurance penalty. Building loss under the Dwelling Form will be adjusted on an Actual Cash Value (ACV) basis if the Replacement Cost provision is not met. The cost of bringing the building into compliance with local codes (law and ordinance) is not included in the calculation of replacement cost. An endorsement can be written with a no coinsurance option, so that loss due to flood can be paid at the full limits of the policy, even if an 80% coinsurance requirement is not met. Binders Unfortunately binders are not permitted under the NFIP. A binder is not considered sufficient evidence that flood insurance is in place. The NFIP considers flood insurance coverage effective upon the completion of an application and the "presentment of payment of premium." In other words, the receipt of funds at FEMA dictate the policy date even if it takes them 2 months to underwrite. Presentment of Payment Under the NFIP, presentment of payment is defined as the receipt of premium and is considered to be the time payment is actually received by the NFIP or WYO Company. Delivery to an insurance agent or broker, or mailing a premium by ordinary mail with placement of a postmark does not constitute presentment to the NFIP. However, banks typically accept as proof of purchase a copy of the borrower's application for flood insurance and evidence that the NFIP or WYO company has received the premium payment. 12

13 Blanket Coverage Flood insurance is written with a separate limit of coverage applying to each building in the floodplain... i.e., one building per policy. Blanket coverage is not available. The limit of coverage per building shall not be less than 80 percent of the maximum probable damage that could be caused by a flood peril. Building and Contents Unlike typically homeowner policies that include coverage for contents, building and contents under a NFIP policy must be purchased separately. Waiting Period / Effective Date You can purchase flood coverage at any time. There is a 30-day waiting period after you've applied and paid the premium before the policy is effective, with the following exceptions: 1) If the initial purchase of flood insurance is in connection with the making, increasing, extending or renewing of a loan, there is no waiting period. The coverage becomes effective at the time of the loan, provided application and payment of premium is made at or prior to loan closing. 2) If the initial purchase of flood insurance is made during the 13-month period following the effective date of a revised flood map for a community, there is a one-day waiting period. This only applies where the Flood Insurance Rate Map (FIRM) is revised to show the building to be in an SFHA when it had not been in an SFHA. The policy does not cover a "loss in progress," defined by the NFIP as a loss occurring as of 12:01 a.m. on the first day of the policy term. In addition, you cannot increase the amount of insurance coverage you have during a loss in progress. Policy Term & Cancellations The policy term for NFIP policies is one year. A Standard Flood Insurance Policyholder whose property has been determined not to be in a special hazard area after the map revision or a Letter of Map Amendment under part 70 of this subchapter may cancel the policy within the current policy year provided (a) he was required to purchase or to maintain flood insurance coverage, or both, as a condition for financial assistance, and (b) his property was located in an identified special hazard area as represented on an effective FHBM or FIRM when the financial assistance was provided. If no claim under the policy has been paid or is pending, the full premium shall be refunded for the current policy year, and for an additional policy year where the insured had been required to renew the policy during the period when a revised map was being reprinted. A Standard Flood Insurance Policyholder may cancel a policy having a term of three (3) years, on an anniversary date, where the reason for the cancellation is that a policy of flood insurance has been obtained or is being obtained in substitution for the NFIP policy and the NFIP obtains a written concurrence in the cancellation from any mortgage of which the NFIP has actual notice; or the policyholder has extinguishing the insured mortgage debt and is no longer required by the mortgagee to maintain the coverage. In such event, the premium refund shall be pro rata but with retention of the expense constant. 13

14 Requirements of the Flood Insurance Reform Act of 2004 On June 30, 2004, President George W. Bush signed into law the Flood Insurance Reform Act of 2004 (FIRA). The FIRA has two main purposes: 1) to reauthorize the National Flood Insurance Program (NFIP or Program) through September 30, 2008; and 2) to establish a pilot program aimed at mitigating the damage and costs associated with repairing properties with severe repetitive flood losses. The Act also created new responsibilities for agents and the need for training found in this course. Point of Sale & Renewal Responsibilities The FIRA requires the delivery of certain documents and forms be given to all holders of flood insurance policies upon purchase and renewal of flood insurance policies, and to insurance companies and agents authorized to sell flood insurance policies. Among them: 1) A Notification of Coverages Being Purchased to help consumers understand NFIP coverage, policy exclusions, adjustments and claims. 2) An Acknowledgement Form that the purchaser has been told that the contents of a property or dwelling are not covered by a standard flood insurance policy and that the purchaser has been told of the opportunity to purchase supplemental insurance to cover the contents of the property. This form must be signed by the purchaser and mailed directly to FEMA. 3) An Explanation of How Lost Items and Damages Will Be Adjusted, i.e., replacement cost versus actual cash value. 4) Making available at the time of purchase and each renewal, a copy of FEMA's Flood Insurance Claims Manual. Claims History The number and dollar amount of claims effecting your client's property is important because the 2004 Act authorizes additional mitigation grant funds for properties that have experienced multiple claims. Agent Resources FEMA provides many helpful resources for agents Call Center & Websites "Direct Side" toll free phone for agents and policyholders -- (800) "Direct Side" Claims toll free phone -- (800) FEMA / NFIP website NFIP official website NFIP Agent Training website -- Write Your Own Programs A cooperative undertaking of the insurance industry and the Federal Emergency Management Agency begun in October The WYO Program operates within the context of the NFIP and 14

15 involves private insurance carriers who issue and service National Flood Insurance Program policies. Flood Insurance Manual The Flood Insurance Manual, which includes agent tools and the Standard Flood Insurance Policy forms, is available at Types of NFIP Flood Policies There is more than one type of flood policy issued by FEMA. Standard Flood Insurance Policy The Standard Flood Policy is issued to non-preferred risks. It includes a Dwelling Form, a General Property Form and a Residential Condominium Building Association Policy Form. Preferred Risk Policy Properties in low to moderate-risk flood zones B, C and X may be issued a preferred risk policy. The coverage is lower cost than the Standard Policy. Eligibility is based on being part of a moderate-risk flood zone and on loss history. Residential Condominium Building Association Policy Condominiums can obtain coverage through the Residential Condominium Building Association Policy. It covers the common elements and all structural items of the units within a building. It also covers contents owned in common. Types of buildings covered includes: Condominiums of one or more units where at least 75%of floor area is residential Townhouses Condominiums being used as hotels or timeshares Group Flood Policies Group flood insurance is issued when the President makes a disaster declaration. Applicants can be issued a minimum amount of building and/or contents coverage for a three year policy period. The applicant can cancel the group policy and secure a Standard Flood Policy at any time. Appurtenant Structure An appurtenant structure is a structure which is on the same parcel of property as a principal structure and the use of which is incidental to the use of the principal structure. Examples include a detached garage, storage shed, gazebos, picnic pavilions, boathouses, small pole barns, storage sheds, and similar buildings. The only appurtenant structure covered by the SFIP is a detached garage at the described location, which is covered under the Dwelling Form. Coverage is limited to no more than 10 percent of the limit of liability on the dwelling. 15

16 Scheduled Building Policies An owner of two to ten buildings on contiguous properties can purchase a scheduled building policy. A specified amount of insurance is designated for each building. Covered Buildings under NFIP Policies Many different types of buildings may be covered by NFIP insurance. All structures that are covered must meet the following criteria: The structure must have two or more outside rigid walls and a fully secured roof that is affixed to a permanent site The buildings must resist flotation, collapse and lateral movement At least 51% of the actual cash value of buildings, including machinery and equipment that are part of the buildings, must generally be above ground level. Detached Garages A detached garage at the described location in the policy can be covered under the Dwelling Form. Coverage cannot exceed 10% of the limit of liability on the dwelling, and this amount reduces the limit of liability on the building. To be covered, the garage may not be used or held for use as a dwelling, or for business or farming purpose. Manufactured (Mobile) Homes / Travel Trailers Manufactured homes and travel trailers can be covered by NFIP policies. A manufactured home is defined as a structure built on a permanent chassis, transported to its site in one or more sections, and affixed to a permanent foundation. A travel trailer is a trailer without wheels, built on a chassis and affixed to a permanent foundation, that is regulated under the community s floodplain management and building ordinances or laws. Buildings Entirely or Partially Over Water Buildings With Basements In assessing the lowest floor of a building, determine first if there is a basement. A basement is defined as any area of a building which has its floor subgrade (below ground level) on all sides. T's important because sunken living rooms and crawl are classified as "basements" and NFIP coverage is limited to foundation elements, utility connections, mechanical equipment (furnaces, hot water heaters, clothes washers and dryers, food freezers, air conditioners, heat pumps, electrical junctions, and circuit breaker boxes) only. Basement improvements such as finished walls, floors, ceilings, or personal belongings are not covered without purchasing separate "contents" coverage. Elevated Buildings A non-basement building that has its lowest elevated floor raised above the ground level by foundation walls, shear walls, posts, piers, pilings, or columns. In zones V and VE, solid foundation walls are not acceptable risks. Buildings entirely over water that have a construction start date on or after October 1, 1982 are ineligible for coverage. However, buildings entirely over water built or substantially improved before this date may be eligible for coverage. 16

17 Buildings partially over water are also eligible for coverage. Boathouses Located Partially Over Water Certain portions of a boathouse located partially over water are eligible for coverage. The nonboathouse parts of a building into which boats are floated are eligible for coverage if the building is partly over land and is also used for residential, commercial or municipal purposes. The area above the boathouse that is used for purposes unrelated to the boathouse use, such as a residence, is insurable from the floor joists to the roof, including walls. Buildings in the Course of Construction Certain buildings in the course of construction are eligible for flood insurance coverage. If the building has yet to be walled and roofed, it is eligible under this coverage unless construction has been halted for more than 90 days and/or the lowest floor is below the defined Base Flood Elevation. Single Building Coverage The policy includes single building limits of coverage when a single building is insured. To qualify as a single building, the building must be separated from other buildings by intervening clear wall space or solid, vertical, load bearing division walls. Improvements & Betterments Only work necessary to bring the property back to its condition prior to the emergency... pre-disaster condition... is covered. Any betterment is not considered eligible. FEMA requires all expenses to be documented thoroughly. However, a tenant may apply 10 percent of coverage B limits to improvements made part of a building with the condition that they not be removed. If a building is separated into divisions by solid, vertical load bearing walls that extend from the lowest level to the highest ceiling, each building division can be insured as a separate building. If the wall has a door or other opening or provides access from one building or room to another, the building must be insured as a single building. Additions and Extensions Additions and extensions can be insured separately if they are attached to and in interior wall, a stairway, an elevated walkway, or a roof. These types of additions and extensions can be covered as part of the single building coverage or may be separately insured, at the insured s option. If an addition or extension is attached to and in contact with a dwelling by means of a common interior wall that is not a solid load-bearing wall, it must be covered as part of the single building coverage. Occupancy Coverage and rates are affected by the way a building s occupancy is classified. Classifications include Single Family Dwellings, Two To Four Family Dwellings, Other Residential Buildings and Non-Residential Buildings. 17

18 Single Family Dwellings Single family dwellings are non-condominium residential buildings designed for principal use as a dwelling place for one family, or a single-family dwelling place for one family, or a single-family dwelling unit in a condominium building. Incidental occupancies are permitted, such as structures with office, professional, private school or studio occupancies, including a small service operation, if the occupancy is limited to less than 50% of the building s total floor area. Two to Four Family Dwellings Two to four family dwellings are non-condominium residential buildings designed for principal use as a dwelling place of two to four families. Most family dwellings are allowed incidental occupancies as long as the incidental occupancy is limited to less than 25% of the total floor area within the building. Other Residential Buildings For coverage purposes, Other Residential Buildings are buildings such as dormitories and assisted living facilities, and include hotels or motels where the normal occupancy of a guest is six months of more, or a tourist home or rooming house which has more than four roomers. Also included are residential buildings, excluding hotels and motels with normal room rentals for less than six months duration and containing more than four dwelling units. Incidental occupancies in Other Residential Buildings are limited to less than 25% of the total floor area within the building. Non-Residential Buildings The category of Non-Residential Buildings includes all other eligible occupancies, including garages, pool houses, recreational buildings, agricultural buildings, licensed bed and breakfasts and nursing homes. Contents Coverage The policy provides coverage for certain contents. The contents must be located in a fully enclosed building or secured to prevent flotation out of the building. Vehicles and equipment that are not licensed for use on public roads and are self-propelled vehicles or machines are covered if they are used mainly to service the described location or are designed and used to assist handicapped persons. Eligible vehicles and equipment are only covered if inside a building at a described location. Contents within silos, grain storage buildings and cisterns are also insurable. Ineligible Property Certain buildings are ineligible for coverage under the Dwelling policy. Buildings 18

19 If a building would otherwise by insurable, but has been placed on a 1316 Property List, it is not eligible for NFIP coverage. A 1316 Property List is made up of property that falls under Section 1316 of the National Flood Insurance Act of Under Section 1316, states may declare a structure to be in violation of a law, regulation or ordinance. Once the violation is corrected, the Section 1316 declaration can be rescinded and the building can be covered by flood insurance. Container-Type Buildings Gas and liquid tanks, chemical or reactor container tanks or enclosures, brick kilns and similar units and their contents may not be covered under the NFIP policy. Buildings Partially Underground Buildings whose actual cash value is 50% or more below ground are ineligible for coverage unless the lowest level is at or above the Base Flood Elevation and is below ground due to earth being used as insulation material in conjunction with energy efficient building techniques. Property Not Covered Some specific examples of ineligible risks are provided below: Building Coverage 1. Boat Repair Dock 2. Boat Storage Over Water 3. Boathouses 4. Camper 5. Cooperative Unit Within Cooperative Building 6. Decks (except for steps and landing ;maximum landing area of 16 sq. ft.) 7. Drive-In Bank Teller Unit (located outside walls of building) 8. Fuel Pump 9. Gazebo (unless it qualifies as a building) 10. Greenhouse (unless it has at least two rigid walls and a roof) 11. Hot tub or spa (unless it is installed as a bathroom fixture) 12. Open Stadium 13. Pavilion (unless it qualifies as a building) 14. Pole Barn (unless it qualifies as a building) 15. Pumping Station (unless it qualifies as a building) 16. Storage Tank--Gasoline, Water, Chemicals, Sugar, etc. 17. Swimming Pool Bubble 18. Swimming Pool (indoor or outdoor) 19. Tennis Bubble 20. Tent 21. Time Sharing Unit Within Multi-Unit Building 22. Travel Trailer (unless converted to a permanent onsite building meeting the community's floodplain management permit requirements) 23. Water Treatment Plant (unless 51 percent of its actual cash value is above ground) 24. Finished items in basements (wall materials, built-ins, floor coverings, etc) 25. Enclosed areas under elevated floors such as vehicle parking partitions, storage walls, etc) 19

20 26. Additional living expenses, loss of use, business interruption, etc. Statutory Coverage Limits Residential homes can be insured up to a maximum of $250,000 under the NFIP policy s Building Coverage. Non-residential buildings can be insured up to a maximum of $500,000 under Building Coverage. The maximum personal property Contents Coverage limit available is: Up to $100,000 for contents with a Standard Flood Insurance Policy Up to $60,000 for contents with a Preferred Risk Policy The following coverage limits are available under the Dwelling Form and the General Property Form of the Standard Flood Insurance Policy. Emergency Program Regular Program Building Coverage* Single-family dwelling $ 35,000 $250,000 Other residential* 35, ,000 Other residential 100, ,000 Non-residential 100, ,000 Contents Coverage Residential 10, ,000 Non-residential including Small Business 100, ,000 * Under the Emergency Program, higher limits of building coverage are available in Alaska, Hawaii, the U.S. Virgin Islands, and Guam. The average premium paid for flood insurance is $370 annually. Increased Cost of Compliance When a structure is repaired or replaced, current laws and regulations may dictate standards the repaired or replaced structure must meet. The NFIP policy includes Increased Cost of Compliance (ICC) coverage to help the insured meet the financial burden of complying with these laws or regulations. For all new and renewing policies effective on or after May 1, 2003, the ICC limit of liability is $30,000. ICC coverage is included on all Standard Flood Insurance Policies, except: Policies issued or renewed in the Emergency Program Condominium units, including townhouse/rowhouse condominium units Group Flood Insurance Policies 20

21 Appurtenant structures, unless covered by a separate policy 21

22 Chapter Three: The Preferred Risk Policy FLOOD INSURANCE The Preferred Risk Policy first became available in It is designed to provide protection for low to moderate risk residences at a lower premium cost than the standard flood policy provides. New limits and coverages went into effect for the preferred risk policy on May 1, Some of the changes to the preferred risk policy that went into effect are: Extended coverage: Coverage applies not only to 1 4 family residences, but also to other residential property such as tourist and rooming houses, and non-residential occupancies. Coverage limits raised: 1 4 family residential limits increased from $250,000/$60,000 (current limits of building/contents) to $250,000/$100,000 (new), with a premium increase of $1.00. New offer of non-residential buildings/contents coverage: Maximum coverage is $500,000/$500,000. Extended coverage for renters: Contents-only coverage is extended to owners and tenants of all eligible occupancies, except when contents are located entirely in a basement. Owners and tenants in the moderate-risk B, C and X zones can purchase a preferred risk flood policy. Statutory Coverage Limits One-to-four family residential coverage has a maximum coverage limit of $250,000 building and $100,000 contents. The maximum non-residential coverage is $500,000 building and $500,000 contents. Other residential properties can be covered for contents only under the preferred risk policy, with a maximum limit of $100,000. Loss History and Ineligibility If any of the following loss histories exist, a building that would otherwise be eligible for a preferred risk policy is ineligible: Two flood insurance claim payments, each more than $1000, or Three or more flood insurance claim payments, regardless of amount, or Two Federal flood disaster relief payments (including loans and grants) each more than $1000, or Three Federal flood disaster relief payments (including loans and grants), regardless of amount; or One flood insurance claim payment and one Federal flood disaster relief payment (including loans and grants), each more than $1000. Exclusions From the Preferred Risk Policy Coverage Preferred risk policy coverage is not available in Special Flood Hazard Areas or in Emergency Program communities. Contents that are located entirely in a basement are not eligible for 22

23 contents-only coverage. Condominium associations, unit owners, and their tenants are not eligible except for: A townhouse/rowhouse building insured under the unit owner s name A detached, single-family dwelling insured under the unit owner s name Contents-only coverage for tenants occupying townhouse/rowhouse buildings or detached single-family dwellings Deductibles Preferred risk policies have a standard deductible only, of $500. Documentation An application for a preferred risk policy issued directly by the NFIP must be accompanied by one of the following to establish eligibility: A Letter of Map Amendment (LOMA) A Letter of Map Revision (LOMR) A Letter of Determination Review (LODR) A copy of the most recent flood map marked to show the exact location and flood zone of the building A letter indicating the exact location and flood zone of the building, and signed and dated by a local community official An elevation certificate indicating the exact location and flood zone of the building, and signed and dated by a surveyor, engineer, architect or local community official A flood zone determination certification that guarantees the accuracy of the information Renewing Preferred Risk Policies As long as eligible, a preferred risk policy is renewed automatically, If the risk becomes ineligible, the policy must be non-renewed and rewritten as a standard flood insurance policy. Replacement Cost Coverage Elevation Certificate An elevation certificate is used to certify building elevations. In certain zones it is required. In others, it is considered optional, however, use of an elevation certificate can result in a better rate. Replacement cost coverage applies under a preferred risk policy, as long as certain conditions exist. The building must be the principal residence of the insured, and the building coverage chosen is at least 80% of the replacement cost of the building at the time of the loss, or is the maximum coverage limit available under the policy. 23

24 24

25 FLOOD INSURANCE Chapter Four: Standard Flood Policy The Standard Flood Policy coverage is available through a Dwelling Form, a General Property Form and a Residential Condominium Building Association Form. A Standard Flood Insurance Policy is a single-peril (flood) policy that pays for direct physical damage to an insured's property up to the replacement cost or Actual Cash Value (ACV) of the actual damages or the policy limit of liability, whichever is less. The Dwelling Form The Dwelling Form covers a non-condominium residential building designed for principal use as a dwelling place for one to four families, or a single-family dwelling unit in a condominium building. Definition of Flood A flood is defined as: 1. A general and temporary condition of partial or complete inundation of two or more acres of normally dry land or of two or more properties (at least one of which is the insured s property) from: a. Overflow of inland or tidal waters b. Unusual and rapid accumulation or runoff of surface waters from any source c. Mudflow 2. Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined in 1.a above Mudflow is defined as: A river of liquid and flowing mud on the surface of normally dry land areas, as when earth is carried by a current of water. Other earth movements, such as landslide, slope failure, or a saturated soil mass moving by liquidity down a slope, are not mudflows. Coverage A Building Property The Dwelling form covers a dwelling at the described location, and additions and extensions attached to and in contact with the dwelling by means of a rigid exterior wall, a solid load-bearing interior wall, a stairway, an elevated walkway, or a roof. A detached garage at the described location is also covered, and the coverage limit can be no more than 10% of the limit of liability on the dwelling. 25 Mudslides vs. Mudflow A mudflow is a flooding condition where a river of liquid and flowing mud moves on the surface of normally dry land areas. Mudslides occur when a dry or wet mass of earth or rock moves downhill. Though a flood may trigger a mudslide, damage is caused by the falling mass of rock or earth, not the water. Mudflows are covered by flood insurance - mudslides are not.

26 Materials and supplies that are to be used for construction, alteration, or repair of the dwelling or a detached garage are covered while the materials and supplies are stored in a fully enclosed building at the described location or on an adjacent property. Buildings Under Construction A building under construction, alteration or repair and at the described location is covered if the structure is not yet walled or roofed, and only while such work is in progress, or if the work is halted, only for a period of up to 90 continuous days after it is halter. Buildings under construction are not covered if the lowest floor, including the basement, is below the specified base flood elevation for the zone within which it resides. Manufactured homes and travel trailers are covered buildings. If a manufactured home or travel trailer is in a special flood hazard area, it must be anchored in place at the time of loss. Items Covered Under the Building Property Coverage The following items are covered under the Building Property Coverage: a. Awnings and canopies b. Blinds c. Built-in dishwashers d. Built-in microwaves e. Carpet permanently installed over unfinished flooring f. Central air conditioners; g. Elevator equipment; h. Fire sprinkler systems; i. Walk-in freezers; j. Furnaces and radiators; k. Garbage disposal units; l. Hot water heaters, including solar water heaters; m. Light fixtures; n. Outdoor antennas and aerials fastened to o. buildings; p. Permanently installed cupboards, bookcases, q. cabinets, paneling, and wallpaper; r. Plumbing fixtures; s. Pumps and machinery for operating pumps; t. Ranges, cooking stoves, and ovens; u. Refrigerators; and v. Wall mirrors, permanently installed. Coverage B - Personal Property Coverage Personal property coverage can be purchased under the Dwelling Form. The coverage applies to property owned by the insured or household family members. Optional coverage for property owned by guests of servants can also be purchased. 26

27 If a building is not fully enclosed, property must be secured to prevent flotation out of the building during the flood in order to be covered. Covered Property The following property is covered under the Personal Property coverage: a. Air conditioning units, portable or window type b. Carpets, not permanently installed, over unfinished flooring c. Carpets over finished flooring d. Clothes washers and dryers e. Cook out grills f. Food freezers, other than walk-in, and food in any freezer g. Portable microwave ovens and portable dishwashers Basements The National Flood Insurance Program (NFIP) defines a basement as any area of a building with a floor that is below ground level on all sides. While flood insurance does not cover basement improvements, such as finished walls, floors or ceilings, or personal belongings that may be kept in a basement, such as furniture and other contents, it does cover structural elements, essential equipment and other basic items normally located in a basement. Many of these items are covered under building coverage, and some are covered under contents coverage. The NFIP encourages people to purchase both building and contents coverage for the broadest protection. The following items in a basement are covered under building coverage, as long as they are connected to a power source and installed in their functioning location: Sump pumps Well water tanks and pumps, cisterns and the water in them Oil tanks and the oil in them, natural gas tanks and the gas in them Pumps and/or tanks used in conjunction with solar energy Furnaces, hot water heaters, air conditioners, and heat pumps Electrical junction and circuit breaker boxes and required utility connections Foundation elements Stairways, staircases, elevators and dumbwaiters Unpainted drywall and sheet rock walls and ceilings, including fiberglass insulation Cleanup The following items in a basement are covered under contents coverage: Clothes washers Clothes dryers Food freezers and the food in them 27

28 Special Limits Special limits apply to certain types of personal property. No more than $2500 will be paid for any one loss to one or more of the following kinds of personal property: a. Artwork, photographs, collectibles, or memorabilia, including but not limited to, porcelain or other figures, and sports cards; b. Rare books or autographed items; c. Jewelry, watches, precious and semiprecious stones, or articles of gold, silver, or platinum; d. Furs or any article containing fur which represents its principal value; or e. Personal property used in any business. Antiques are only covered for their functional value. Coverage C Other Coverages Other coverages under the Dwelling policy include Debris Removal, Loss Avoidance Measures and Condominium Loss Assessments. These coverages do not increase the limits of the policy. Debris Removal Debris removal coverage includes paying for removal of non-owned debris off of the insured property and removing owned debris from anywhere. Loss Avoidance Measures Various loss avoidance measures are paid for by the policy under Other Coverages. Sandbags, Supplies and Labor The coverage provides payment of up to $1000 for costs incurred to protect an insured building from flood or imminent danger of flood. The expense for the following items used for this purpose are covered: Sandbags, including sand to fill them Fill for temporary levees Pumps, and Plastic sheeting and lumber used in connection with these items Work performed by the insured or family members to protect the insured building are paid at the federal minimum wage level. Property Removed to Safety Up to $1000 is payable for expenses to move insured property to a place other than the insured location in order to protect the property from flood or the imminent danger of flood. The property moved is covered for 45 days from the date it is first moved to the new location. 28

29 Condominium Loss Assessments A condominium association may assess unit owners for costs incurred due to direct physical loss by a flood to the building s common elements, in accordance with the condominium associations articles, declarations and the insured s deed. The policy generally covers the insured s share of these losses. Coverage D Increased Cost of Compliance A structure needing repairs or reconstruction due to suffering flood damage may be subject to State or local floodplain management laws or ordinances. The policy includes payment of up to $30,000 to pay for the costs of complying with these laws or ordinances. Compliance activities that are eligible for payment are elevation, flood proofing, relocation or demolition. Property Not Covered All of the following property types are not covered under the Dwelling form: 1. Personal property not inside the fully enclosed building; 2. A building, and personal property in it, located entirely in, on, or over water or seaward of mean high tide if it was constructed or substantially improved after September 30, 1982; 3. Open structures, including a building used as a boathouse or any structure or building into which boats are floated, and personal property located in, on, or over water; 4. Recreational vehicles other than travel trailers, whether affixed to a permanent foundation or on wheels 5. Self-propelled vehicles or machines, including their parts and equipment. However, we do cover self propelled vehicles or machines not licensed for use on public roads that are: a. Used mainly to service the described location, or b. Designed and used to assist handicapped persons, while the vehicles or machines are inside a building t the described location; 6. Land, land values, lawns, trees, shrubs, plants, growing crops, or animals; 7. Accounts, bills, coins, currency, deeds, evidences of debt, medals, money, scrip, stored value cards, postage stamps, securities, bullion, manuscripts, or other valuable papers; 8. Underground structures and equipment, including wells, septic tanks, and septic systems; 9. Those portions of walks, walkways, decks, driveways, patios, and other surfaces, all whether protected by a roof or not, located outside the perimeter, exterior walls of the insured building or the building in which the insured unit is located; 10. Containers, including related equipment, such as, but not limited to, tanks containing The Coastal Barrier Resource System In 1990, the Coastal Barrier Improvement Act establishing a system of protected coastal areas (including the Great Lakes) and Otherwise Protected Areas (OPAs) known as the Coastal Barrier Resources System (CBRS). Over three million acres of land and associated aquatic habitat are part of the CBRS. These areas constitute a "first line of defense" against severe coastal storms and erosion. The Coastal Barrier Resources Systems (CBRS) and Other Protected Area (OPA) boundaries are defined by Flood Insurance Rate Maps (FIRMs) by backward slanting diagonal lines, both solid and broken. Flood insurance in these zones is extremely limited. 29

30 gases or liquids; 11. Buildings or units and all their contents if more than 49 percent of the actual cash value of the building or unit is below ground, unless the lowest level is at or above the base flood elevation and is below ground by reason of earth having been used as insulation material in conjunction with energy efficient building techniques; 12. Fences, retaining walls, seawalls, bulkheads, wharves, piers, bridges, and docks; 13. Aircraft or watercraft, or their furnishings and equipment; 14. Hot tubs and spas that are not bathroom fixtures, and swimming pools, and their equipment such as, but not limited to, heaters, filters, pumps, and pipes, wherever located; 15. Property not eligible for flood insurance pursuant to the provisions of the Coastal Barrier Resources Act and the Coastal Barrier Improvement Act and amendments to these acts; 16. Personal property you own in common with other unit owners comprising the membership of a condominium association. Exclusions The policy pays only for direct physical loss by or from flood so the following items are excluded: 1. Loss of revenue or profits 2. Loss of access to the insured property or described location 3. Loss of use of the insured property or described location 4. Loss from interruption of business or production 5. Any additional living expenses incurred while the insured building is being repaired or is unable to be occupied for any reason 6. The cost of complying with any ordinance or law requiring or regulating the construction, demolition, remodeling, renovation or repair of property, including removal of any resulting debris, except for eligible activities covered under the Increased Cost of Compliance Coverage 7. Any other economic loss Earth Movement Exclusions Loss of property caused directly by earth movement, even if the earth movement is caused by a flood, is not covered. The policy does not cover earthquake, landslide, land subsidence, sinkholes, destabilization or movement of land that results from accumulation of water in subsurface land area, or gradual erosion. Other Exclusions Direct physical loss caused directly or indirectly by any of the following is excluded: 1. The pressure or weight of ice; 2. Freezing or thawing; 3. Rain, snow, sleet, hail, or water spray; 4. Water, moisture, mildew, or mold damage that results primarily from any condition: a. Substantially confined to the dwelling; or b. That is within your control, including but not limited to: (1) Design, structural, or mechanical defects; (2) Failure, stoppage, or breakage of water or sewer lines, drains, pumps, fixtures, or 30

31 equipment; or (3) Failure to inspect and maintain the property after a flood recedes; 5. Water or waterborne material that: a. Backs up through sewers or drains; b. Discharges or overflows from a sump, sump pump, or related equipment; or c. Seeps or leaks on or through the covered property; unless there is a flood in the area and the flood is the proximate cause of the sewer or drain backup, sump pump discharge or overflow, or seepage of water; 6. The pressure or weight of water unless there is a flood in the area and the flood is the proximate cause of the damage from the pressure or weight of water; 7. Power, heating, or cooling failure unless the failure results from direct physical loss by or from flood to power, heating, or cooling equipment on the described location; 8. Theft, fire, explosion, wind, or windstorm; 9. Anything you or any member of your household do or conspire to do to cause loss by flood deliberately; or 10. Alteration of the insured property that significantly increases the risk of flooding. The General Property Policy Form The General Property policy form is used for other-residential and non-residential structures and their contents. Building Coverage The building coverage for non-residential structures covers: Unfinished drywall for walls and ceilings, including nonflammable insulation Electrical junction and circuit breaker boxes, and required utility connections Central air-conditioning units Furnaces, hot-water heaters, fuel tanks, and the fuel inside tanks and heat pumps Light fixtures Built-in cabinets Foundation elements Cleanup Contents Coverage The contents coverage under the General Property form covers: Furniture and fixtures Machinery and equipment Stock (including merchandise held in storage for sale) Raw materials Unfinished or finished goods Packing and shipping supplies 31

32 The Residential Condominium Association Form The Residential Condominium Association form provides building coverage for condominium associations. Building Coverage Under the Residential Condominium Association policy, a condominium association can purchase building coverage up to $250,000 times the number of units, or the replacement cost of the building, whichever is less. Eligible buildings include garden apartment-type construction, townhouses, row houses and single-family detached buildings owned by the association, as long as 75% of the units are used for residential purposes. Contents Coverage Individual unit owners can purchase up to $100,000 in contents coverage, separate from the coverage purchased by the condominium association. 32

33 Chapter Five: Flood Policy Claims FLOOD INSURANCE The claims process for flood policies is similar to that for other property claims. The insured must document all losses and complete required claim forms. Claims Process The first step an insured should take after a flood has damaged or destroyed property is to contact their insurance agent. The agent notifies an adjuster the NFIP pays for independent adjusters, or a private insurer may have their own adjusters. The adjuster works with the insured to process and settle the claim. Some sample forms can be viewed below. Inventory An insured should be encouraged to document all property and keep the documentation in a safe place, such as a bank safety deposit box. For example, photographs or videotape of a home s or business contents should be taken. Records of major or lasting purchases should be kept, showing the date purchased and original cost of the property. All property should be inventoried and documented, including that in closets and cupboards. This inventory can be a great help when documenting loss on a claim form. Making A Claim After contacting the insurance agent, the insured may separate damaged items from undamaged items, and begin cleaning up. The insured should not dispose of damaged goods before an adjuster is able to examine them and notifies the insured that it is all right to dispose of them. The insured should also take pictures of the damage the flood has done. Cooperation The insured should work with the adjuster and cooperate with him in order to get the claim processed in a timely manner. The insured should also make sure he or she understands the adjuster s claim requirements. If the insured does not agree with the adjuster s assessment of the loss or damage, the insured should contact his agent, or may want to hire a public adjuster or attorney to help represent his claim. Proof of Loss A proof of loss (claim form) needs to be filed with the insurer within 60 days of the date of loss. 33

34 Appeals The NFIP provides your clients with a process to appeal decisions regarding their flood insurance claim. This process will help resolve claim issues, but it cannot give added coverage or claim limits beyond those in NFIP policy. Claims Handbook FEMA provides a detailed claims handbook describing what to do before and after a flood, how to file and appeal a claim and more. Agents and their clients can download a copy at

35 Sample Claim Forms 35

36 36

37 CLAIM GUIDELINES IN CASE OF A FLOOD For the protection of you and your family, the following claim guidelines are provided by the National Flood Insurance Program (NFIP). If you are ever in doubt as to what action is needed, consult your insurance representative or call the NFIP toll-free at or on the TDD line at Know your insurance representative's name and telephone number. List them here for fast reference: Insurance Representative Representative's Phone Number Notify us or your insurance representative, in writing, as soon as possible after the flood. If you report to your insurance representative, remind him or her to assign the claim to an NFIP approvedclaims adjuster. The NFIP pays for the services of the independent claims adjuster assigned to your claim. Determine the independent claims adjuster assigned to your claim and contact him or her if you have not been contacted within 24 hours after you reported the claim to your insurance representative. As soon as possible, separate damaged property from undamaged property so that damage can be inspected and evaluated. Discuss with the claims adjuster any need you may have for an advance or partial payment for your loss. To help the claims adjuster, try to take photographs of the outside of the premises showing the flooding and the damage and photographs of the inside of the premises showing the height of the water and the damaged property. Place all account books, financial records, receipts, and other loss verification material in a safe place for examination and evaluation by the claims adjuster. Work cooperatively and promptly with the claims adjuster to determine and document all claim items. Be prepared to advise the claims adjuster of the cause and responsible party(ies), if the flooding resulted from other than natural cause. Make sure that the claims adjuster fully explains, and that you fully understand, all allowances and procedures for processing claim payments on the basis of your proof of loss. This policy requires you to send us detailed proof of loss within 60 days after the loss. Any and all coverage problems and claim allowance restrictions must be communicated directly from the NFIP. Claims adjusters are not authorized to approve or deny claims; their job is to report to the NFIP on the elements of flood cause and damage. At our option, we may accept an adjuster's report of the loss instead of your proof of loss. The adjuster's report will include information about your loss and the damages to your insured property. You must sign the adjuster's report. At our option, we may require you to swear to the report. 37

38 Claims Insured's Responsibilities In the event of loss, the insured is required to: Give written notice of loss to the National Flood Insurance Program (NFIP) or the applicable WYO Company, as soon as practicable, using the NFIP Notice of Loss form or similar form; Exhibit all remains of the property, as required; If requested, submit to an examination under oath, as required; Provide evidence and documentation to substantiate the loss, as required; and File a Proof of Loss within 60 days of the loss, unless this requirement is waived by the Federal Emergency Management Agency (FEMA). The NFIP has a standard Proof of Loss form which the adjuster assigned to the loss may provide and assist the insured in completing. However, independent adjusters do not have the authority either to approve or to deny claims. Adjusters' recommendations for payment or denial are not binding on the NFIP or the WYO Company and are subject to approval and correction by the NFIP or the WYO Company staff. The Proof of Loss form may be waived on claims for less than $7,500. In this case, the insured will be required to sign the NFIP Final Report form, which summarizes the loss and claim figures. Agent Responsibilities Producers may assign any NFIP Direct claim to an NFIP-approved independent adjuster except: When, in major flooding disasters, the Flood Insurance Claims Office (FICO) makes all assignments. When an Adjuster Control Office is established. When a Claims Coordinating Office (CCO) is established. Failure to indicate the assigned adjuster on the loss notice, or assignment of an adjuster who is not authorized by the NFIP, will delay the adjustment process and may result in duplicate adjuster assignments. When it appears that a situation is serious enough that a FICO may be necessary, the NFIP will notify producers and producer trade associations in the affected area (using the broadcast media and press releases) as soon as possible to hold their loss notices unassigned until further instructions are received. In the case of a WYO Company claim, the WYO Company's producer will follow the established procedures when assigning an adjuster. 38

39 Adjustor Programs Schedule and Notification FEMA and various Coastal Plans will determine whether a catastrophe event will necessitate a Single Adjuster Program (SAP) response. The National Weather Service declaration of a tropical storm or hurricane event will begin the watch for possible single adjuster response. When the storm is 48 hours from landfall, this will initiate FEMA s approval of the SAP response. During that time, the NFIP Bureau and Statistical Agent s General Adjusters will be deployed to strategic areas close to where the storm is predicted to strike. At landfall, they will be able to immediately assess the damage impact from the storm. No later than 24 hours after landfall, the WYO Companies will be advised by telephone or fax through their designated Single Adjuster Liaison, as to the areas and state(s) that will be subject to the SAP. At that point, the WYO Companies will be asked to immediately notify their agents of the SAP procedures in reporting the claims. The NFIP Bureau and Statistical Agent will notify the WYO Companies by telephone or fax directing the companies to have their agency staff submit all flood losses that are reasonably believed to involve wind and flood damage to the State Coastal Plans (i.e., Windpool, Fairplan, Beachplan). The NFIP will notify all SAP Liaisons of the Claims Coordinating Office s (CCO) location, telephone number, fax number, and address, if the CCO does not co-locate with the State Coastal Plans. When the CCO is operational, the WYO companies will be notified of all assigned claims. Notice of los es reflecting the assigned adjusting firms will be faxed each day. Once the assignment is made and communicated to each company, the WYO Company will manage its own loss adjustment. However, the Catastrophe CCO will ensure that the adjuster receives a copy of the loss assignments, the name of the WYO Company, and the SAP Liaison telephone number. Training The NFIP Bureau and Statistical Agent Claims Coordinator and FEMA will annually conduct coordination training sessions, both pre- and postevent, in conjunction with the State Coastal Plans, adjusters, state and local officials, and insurers to train all participants. These training sessions will include regional issues, the State Coastal Plans' procedures, confirmation of coverages for SAP losses, closed without payment (CWOP) procedures, adjuster resources, and duplicate assignments, etc. The NFIP Bureau and Statistical Agent will continue to provide training for specific problems and situations that may arise during a catastrophe event. FEMA suggests that within the first 48 hours, or whenever applicable, an adjuster briefing should be conducted for all SAP adjusters and adjusting firms to ensure that they understand program procedures. Guidelines contained in the NFIP Adjuster Claims Manual provide details to address particular claims issues. This document is available on the web at under Information for Claims Adjusters. Producer Responsibilities 1. When directed by FEMA, the producer will have no authority to assign any losses involving a flood policy when there is a reasonable belief that there is flood and wind damage, and will report 39

40 the losses on the combined Wind/Flood loss notice to the Stationary CCO, with wind coverage information. 2. NFIP/WYO insurers insuring both the flood and the wind loss should not report the combined loss to the CCO, but will assign their own single adjuster. 3. The producers will report their flood losses via fax to the established CCO, along with wind coverage information in every instance except those mentioned above. In all cases the producer should send a copy of the loss notice to the insurer. 4. All separate wind losses insured by a WYO company where a flood policy exists will be reported to the CCO for assignment to qualified adjusting firms at the CCO. 5. Upon loss assignment, the insurer will be advised of the assigned adjusting firm by modem transfer, fax, or mail. 6. These procedures relate to assignment of claims only. Insurers may perform other procedures in accordance with their standard business practices. Increased Cost of Compliance Claims The producer should become familiar with the ICC aspects of the flood program. He/she can do this by attending an NFIP ICC workshop or reading the NFIP literature distributed by FEMA. Information concerning ICC claims may be obtained from your WYO company or NFIP Direct. 40

41 Glossary FLOOD INSURANCE Base Flood Elevation (BFE). The elevation shown on the Flood Insurance Rate Map for Zones AE, AH, A1-A30, AR, AR/A, AR/AE, AR/A1-A30, AR/AH, AR/AO, V1-V30, and VE that indicates the water surface elevation resulting from a flood that has a one percent chance of equaling or exceeding that level in any given year. Basement Any area of a building which has its floor subgrade (below ground level) on all sides. Condominium Association. The entity made up of the unit owners responsible for the maintenance and operation of: Common elements owned in undivided shares by unit owners; Other real property in which the unit owners have use rights; where membership in the entity is a required condition of unit ownership. Direct Physical Loss By or From Flood. Loss or damage to insured property, directly caused by a flood. There must be evidence of physical changes to the property. Dwelling. A building designed for use as a residence for no more than four families or a single-family unit in building under a condominium form of ownership. Enclosure That portion of an elevated building below the lowest elevated floor that is either partially or fully shut-in by rigid walls. Elevated Building A non-basement building that has its lowest elevated floor raised above the ground level by foundation walls, shear walls, posts, piers, pilings, or columns. Flood Any time two or more normally dry residential or commercial lots are inundated by unusual or rapid water or mudflow The condition is temporary and may be also be caused by erosion due to the collapse or subsidence of land along a lake or other body of water. Floodplain Management. The operation of an overall program of corrective and preventive measures for reducing flood damage, including but not limited to, emergency preparedness plans, flood control works, and floodplain management regulations. Grandfathering An exemption based on circumstances previously existing. Under the NFIP, buildings located in Emergency Program communities and Pre-Flood Insurance Rate Map buildings in the Regular Program are eligible for subsidized flood insurance rates. Post-Flood Insurance Rate Map 41

42 buildings in the Regular Program built in compliance with the floodplain management regulations in effect at the start of construction will continue to have favorable rate treatment even though higher base flood elevations or more restrictive, greater risk zone designations result from Flood Insurance Rate Map revisions. Letter of Determination Review (LODR). FEMA s ruling on the determination made by a lender or third party that a borrower s building is in a Special Flood Hazard Area (SFHA). A LODR deals only with the location of a building relative to the SFHA boundary shown on the Flood Insurance Rate Map. Letter of Map Amendment (LOMA). An amendment to the currently effective FEMA map which establishes that a property is not located in a Special Flood Hazard Area. A LOMA is issued only by FEMA. Letter of Map Revision (LOMR). An official amendment to the currently effective FEMA map. It is issued by FEMA and changes flood zones, delineations, and elevations. Natural Grade The grade unaffected by construction techniques such as fill, landscaping or berming. New Construction Buildings for which the "Start of Construction" commenced on or after the effective date of an initial FIRM or after December 31, 1974, whichever is later, including any subsequent immprovements. Post-FIRM Construction Construction or substantial improvement that started on or after the effective date of the initial Flood Insurance Rate Map (FIRM) of the community or after December 31, 1974, whichever is later. Pre-FIRM Construction Construction or substantial improvement which started on or before December 31, 1974, or before the effective date of the initial Flood Insurance Rate Map (FIRM) of the community, whichever is later. Preferred Risk Policy A package policy offering a variety of coverage combinations for both building and contents at a fixed premium. It is now available for all buildings located in B, C, and X Zones that meet eligibility requirements based on an entire flood loss history. Probation A means of formally notifying participating communities of violations and deficiencies in the administration and enforcement of the local floodplain management regulations. Probation Additional Premium A flat charge per policy term paid by the Insured on all new and renewal policies issued covering property in a community that has been placed on probation under the provisions of 44 CFR Regular Program 42

43 The phase of a community's participation in the NFIP where more comprehensive floodplain management requirements are imposed and higher amounts of insurance are available based upon risk zones and elevations determined in a flood insurance study. The Flood Insurance Rate Map is the map used in this phase of the NFIP. Replacement Cost The cost to replace property with the same kind of material and construction without deduction for depreciation. Sheet Flow Hazard A type of flood hazard with flooding depths of 1 to 3 feet that occurs in areas of sloping land. The sheet flow hazard is represented by the zone designation AO on the FIRM. Section Section of the National Flood Insurance Act of 1968, as amended, which states that no new flood insurance coverage shall be provided for any property that FEMA finds has been declared by a duly constituted state or local zoning authority or other authorized public body to be in violation of state or local laws, regulations, or ordinances that are intended to discourage or otherwise restrict land development or occupancy in flood-prone areas. Submit for Rate An application for flood insurance on a building for which no risk rate is published in the Flood Insurance Manual. Insurance coverage can be obtained only after the NFIP has approved the application and has established the risk premium rate. Substantial Damage Damage of any origin sustained by a building whereby the cost of restoring the building to its before-damaged condition would equal or exceed 50 percent of the market value of the building before the damage occurred. Substantial Improvement Any reconstruction, rehabilitation, addition, or other improvement of a building, the cost of which equals or exceeds 50 percent of the market value of the building before the "start of construction" of the improvement. Substantial improvement includes buildings that have incurred "substantial damage," regardless of the actual repair work performed. The term does not, however, include either any project for improvement of a building to correct existing state or local code violations or any alteration to a "historic building," provided that the alteration will not preclude the building's continued designation as a "historic building." Suspension Removal of a participating community from the NFIP because the community has not enacted and/or enforced the proper floodplain management regulations required for participation in the NFIP. Write Your Own (WYO) Program. A cooperative undertaking of the insurance industry and the Federal Emergency Management Agency begun in October The WYO Program operates within the context of the NFIP and involves private insurance carriers who issue and service National Flood Insurance Program policies. 43

44 Zone A geographical area shown on a Flood Hazard Boundary Map or a Flood Insurance Rate Map that reflects the severity or type of flooding in the area. 44

45 FLOOD INSURANCE Frequently Asked Questions How much flood insurance coverage is available? The following coverage limits are available under the Dwelling Form and the General Property Form of the Standard Flood Insurance Policy. Coverage limits under the Residential Condominium Building Association Policy are listed in the NFIP Flood Insurance Manual. Emergency Program Regular Program Building Coverage Single-family dwelling* $ 35,000* $250,000 Other residential* $35,000* $250,000 Other residential $100,000* $250,000 Non-residential $100,000* $500,000 Contents Coverage Residential $ 10,000 $100,000 Non-residential including Small $100,000 Business $500,000 Note: Under the Emergency Program, higher limits of building coverage are available in Alaska, Hawaii, the U.S. Virgin Islands, and Guam. Are there limitations on the amount of insurance available for certain types of property? In general tems such as artwork, photographs, collectibles, memorabilia, rare books, autographed items, jewelry, watches, gems, articles of gold, silver, or platinum and furs are limited to $2,500 coverage in the aggregate. This limitation does not apply to other items that are personal property or household contents usual or incidental to the occupancy of the building as a residence. For additional limitations see the current policy. What flood losses are covered? The Standard Flood Insurance Policy (SFIP) Forms contain complete definitions of the coverages they provide. Direct physical losses by "flood" are covered. Also covered are losses resulting from flood-related erosion caused by waves or currents of water activity exceeding anticipated cyclical levels, or caused by a severe storm, flash flood, abnormal tidal surge, or the like, which result in flooding, as defined. Damage caused by mudflows, as specifically defined in the policy forms, is covered. What coverage is available in basements and in enclosed areas beneath the lowest elevated floor of a elevated building? Coverage is provided for foundation elements, including posts, pilings, piers, or other support systems for elevated buildings. Coverage also is available for basement and enclosure utility connections, certain mechanical equipment necessary for the habitability of the building, such as furnaces, hot water heaters, clothes washers and dryers, food freezers, air conditioners, heat pumps, electrical junctions, and circuit breaker boxes. Finished structural elements such as paneling and linoleum, and contents items such as rugs and furniture are not covered. The SFIP has a complete list of covered elements and equipment. 45

46 What is a basement? The NFIP's definition of "basement" includes any part of a building where all sides of the floor are located below ground level. Even though a room may have windows and constitute living quarters, it is still considered to be a basement if the floor is below ground level on all sides. Are losses from land subsidence, sewer backup, or seepage of water covered? We will pay for losses from land subsidence under certain circumstances. Subsidence of land along a lake shore or similar body of water which results from the erosion or undermining of the shoreline caused by waves or currents of water exceeding cyclical levels that result in a flood is covered. All other land subsidence is excluded. We do not insure for direct physical loss caused directly or indirectly by any of the following: Back ups through swers or drains; or Discharges or overflows from a sump, sump pump, or related equipment; Seepage or leaks on or through the covered property; Unless there is a general condition of flooding in the area and the flood is the proximate cause of the sewer or drain backup, sump pump dis-charge or overflow, or seepage of water. Does the NFIP apply a deductible to losses? A minimum deductible is applied separately to a building and its contents, although both may be damaged in the same flood. Higher deductibles are available, and an insurance agent can provide information on specific amounts of available deductibles. Optional high deductibles reduce policy premiums but will have to be approved by the mortgage lender. Are costs of preventive measures covered under the SFIP? Some are. When an insured building is in imminent danger of being flooded, the reasonable expenses incurred by the insured for removal of insured contents to a safe location and return will be reimbursed up to $1,000, and the purchase of sandbags and sand to fill them, plastic sheeting and lumber used in connection with them, pumps, fill for temporary levees, and wood will be reimbursed up to $1,000. No deductible is applied to this coverage. Does insurance under the NFIP provide coverage at replacement cost? Only for single-family dwellings and residential condominium buildings, if several criteria are met. Replacement cost coverage is available for a single-family dwelling, including a residential condominium unit that is the policyholder's principal residence and is insured for at least 80 percent of the unit's replacement cost at the time of the loss, up to the maximum amount of insurance available at the inception of the policy term. Replacement cost coverage does not apply to manufactured (i.e., mobile) homes smaller than certain dimensions specified in the policy. Losses are adjusted on a replacement cost basis for residential condominium buildings insured under the Residential Condominium Building Association Policy (RCBAP). The principal residence and the 80 percent insurance to value requirements for single-family dwellings do not apply to the RCBAP. However, coverage amounts less than 80 percent of the building's full replacement cost value at the time of loss will be subject to a co-insurance penalty. Contents losses are always adjusted on an actual cash value basis. If the replacement cost conditions are not met, the building loss is also adjusted on an actual cash value basis. Actual 46

47 cash value means the replacement cost of an insured item of property at the time of loss, less the value of physical depreciation as to the item damaged. Does the flood insurance dwelling policy provide additional living expenses, if the insured dwelling is flood damaged and cannot be occupied while repairs are being made? No. The policy only covers direct physical flood damage to the dwelling and does not provide additional living expenses. What is Increased Cost of Compliance coverage? Increased Cost of Compliance (ICC) coverage under the Standard Flood Insurance Policy (SFIP) provides for the payment of a claim to help pay for the cost to comply with State or community floodplain management laws or ordinances from a flood event in which a building has been declared substantially damaged or repetitively damaged. When an insured building is damaged by a flood and the State or community declares the building to be substantially damaged or repetitively damaged, ICC coverage will help pay for the cost to elevate, floodproof, demolish, or relocate the building up to a maximum benefit of $30,000. This coverage is in addition to the building coverage for the repair of actual physical damages from flood under the SFIP. Is there a limit to the amount a policyholder can collect under ICC coverage? Yes. The maximum amount a policyholder may collect under ICC is $30,000. This amount is in addition to the amount the policyholder receives for physical damages by flood. The total amount the policyholder receives for combined physical structural damage from flood and ICC is always capped by the maximum limit of coverage established by Congress. The maximum amount collectible for both ICC and physical damage from flood for a single-family dwelling is $250,000. Is ICC coverage included in all Standard Flood Insurance Policies? No. Insureds under the Group Flood Insurance Policy and insureds with condominium unit owner's coverage are ineligible for ICC coverage. Policies issued or renewed in Emergency Program communities are not eligible for ICC coverage. All other policies include the coverage. Can I buy flood insurance if I live in a high-risk flood area? You can buy a policy from the National Flood Insurance Program, as long as your community participates in the NFIP. Nearly all of the nation s communities with serious flooding risks have joined the NFIP. Can I buy flood insurance just before or during a flood? You can purchase flood insurance anytime. There is a 30-day waiting period after you ve applied and paid the premium before your policy is effective. Exceptions to this rule: If you purchase flood insurance in connection with making, increasing, extending or renewing a loan, there is no waiting period. If you purchase flood insurance during the 13-month waiting period following the effective date of a revised community flood map, there is a one-day waiting period. 47

48 Also, the NFIP policy does not cover any loss in progress. This is any flood damage that began before the effective date of the policy. Does my homeowners insurance policy cover flood damage? Most homeowner policies do not provide coverage for flood. It s rare to find one that does. Check your policy s Declarations page to see if coverage for flood is listed. If you re not sure, call your insurance representative. If I don t live in an area with a high flood risk, why do I need flood insurance? The National Flood Insurance Program states that between 20 to 25 percent of its claims are from outside high-risk flood areas. Won t federal disaster assistance pay for flood damage on my home? Before a community is eligible for disaster assistance, it must be declared a federal disaster area. These declarations are issued in fewer than 50% of flood occurrences. If it is declared a disaster area, most assistance is provided as a loan that must be repaid with interest. The interest is often higher than the average $400 a year premium of a NFIP policy. In low to moderate risk areas, a NFIP policy can be purchased starting at just over $100 a year. Plus, you may be required to purchase a flood insurance policy as a condition of receiving federal disaster assistance. How does the NFIP define flooding? The NFIP defines flooding as a general and temporary condition during which the surface of normally dry land is partially or completely inundated. Two properties in the area or two or more acres must be affected. Flooding can be caused by: The overflow of inland or tidal waters, The unusual and rapid accumulation or runoff of surface waters from any source, such as heavy rainfall, Mudslides, i.e. mudflows, caused by flooding, that could be described as a river of liquid and flowing mud, The collapse or destabilization of land along the shore of a lake or other body of water, resulting from erosion or the effect of waves, or water currents exceeding normal, cyclical levels. Does the NFIP cover damage caused by wind-driven rain? No. Rain entering through wind-damaged windows, doors or a hole in a wall or the roof, resulting in standing water or puddles, is considered windstorm, rather than flood damage. Does my NFIP Policy cover all the buildings on my property? The Standard Flood Insurance Policy provides coverage for one building per policy. The only exception is 10% coverage for a detached garage. However, the total payment for flood damage to the detached garage and the house together cannot exceed the building policy limit. For coverage to apply, the garage can only be used for parking and storage. Any other use would void this coverage, i.e. if the garage has a workshop, the coverage would not apply. All other 48

49 buildings on the premises need separate coverage. Policy limits for residential properties is $250,000 and $500,000 for commercial properties. Are the contents of my home covered under my NFIP Policy? Contents are not automatically included. If contents coverage is desired a specific amount must be named and a separate premium charged, but it doesn t need to be a separate policy. Contents coverage limits are $100,000 for residential policies and $500,000 for commercial policies. What is Actual Cash Value? Actual Cash Value (ACV) is the cost to repair or replace an insured item of property at the time of the loss, less physical depreciation. The value of physical depreciation is based on the age and condition of the item. Personal property, i.e. contents, is always paid at ACV. What is Replacement Cost Value? Replacement Cost Value (RCV) is the cost to repair or replace an insured item of property at the time of the loss without a deduction for physical depreciation. RCV is available when the insured property is the primary residence and the amount of coverage is equal to 80% or more of the replacement cost of the building. RCV is also available for residential condominium buildings. There is no required amount of coverage, but residential condominium buildings not insured to 80% of replacement cost will experience a reduction in their claims payments. Do I have to pay a deductible? Yes, all policies have deductibles for both building and contents coverage (if contents coverage has been purchased). I have a living area in my basement. Is that covered? Strict exclusions of coverage apply in any basement. A basement is defined as any area that is below grade on all four sides. In some cases, sunken living rooms can be defined as a basement. Building coverage in basements is limited to systems that service the building, such as electrical boxes, heat pumps and air conditioners. Contents in basements are not covered with a few exceptions such as a washer, dryer, freezer and the food in it. Similar exclusions of coverage also apply in any enclosure below an elevated structure if the structure is Post-FIRM. What does Post-FIRM mean? FIRM stands for Flood Insurance Rate Map. Post-FIRM means built after the effective date of the initial Flood Insurance Rate Map for the community or December 31, 1974, whichever is later. Does my NFIP Policy cover my additional living expenses when I cannot return home? No, there is no coverage for Additional Living Expenses or Loss of Use or Business Interruption. 49

50 Does my NFIP Policy cover mold or mildew? Damage from mold and/or mildew resulting from the after-effects of a flood is covered but each case is evaluated on an individual basis. Mold and/or mildew conditions that existed prior to a flooding event are not covered. After a flooding event, the policyholder is responsible for taking reasonable and appropriate mitigation actions to reduce and/or eliminate mold and/or mildew. Reasonable actions taken to mitigate mold and/or mildew are covered (for example, the use of responsible drying-out techniques or application of mildicide at a reasonable cost). Does my NFIP Policy cover water backed up from the sewer? Back up of water from sewers and drains are excluded, except when caused by a flood. What is Increased Cost of Compliance, or ICC? This coverage provides up to $30,000 to comply with the community s floodplain management regulations when a building has been substantially damaged by flood and is in a designated floodplain. Does my NFIP Policy cover landscaping or my deck? No, there is no coverage for landscaping, trees, decks or outdoor furniture. Other exclusions are found in the Standard Flood Insurance Policy. What is a Proof of Loss? A Proof of Loss is a legal document that is your statement of the amount you are claiming under the policy. Under the NFIP policy, your Adjustor may prepare a proof of loss as a courtesy. However, you, the insured, are responsible for submitting either the Proof of Loss prepared by your Adjustor or, you may prepare your own. Generally, you must submit it to your insurance company within 60 days of when the damage occurred. What do I do if I do not agree with my Adjustor? You should work with your Adjustor as long as possible. Ask your Adjustor to work with your contractor if your disagreement involves the building claim. If you cannot agree with your Adjustor, ask for assistance from his supervisor. If you still cannot resolve your differences, contact your insurance company. 50

51 UPDATES Since the original copyright date of this course in 2007, there have been substantial changes to the NFIP (FEMA) Flood Program and the FEMA Flood Insurance Manual. Attached are updates to keep this course current.

52 FLOOD INSURANCE PREMIUM REFUNDS: WHO GETS THEM? WHO DOES NOT? The National Flood Insurance Program (NFIP) is in the process of implementing Congressionally mandated reforms required by the Homeowner Flood Insurance Affordability Act of 2014 that repeal and modify the Biggert-Waters Flood Insurance Reform Act of The new law slows some flood insurance rate increases and offers relief to some policyholders who experienced steep flood insurance premium increases in 2013 and early The new law reinstates many of the subsidized rates that were previously eliminated and calls for refunds of the difference between the subsidized rates and the higher full-risk rates that policyholders were required to pay as a result of Biggert-Waters. The law calls for most rates to be capped at no more than 18 percent per year, resulting in more gradual rate increases. The 18 percent cap will also result in refunds for some policyholders, which insurance companies will begin issuing in October It is important to note that refunds apply only to a small group of policyholders, and most policyholders will not receive refunds. Those who do will receive refunds on increases paid to their premiums for policies effective on or after October 1, This fact sheet provides an overview of what some eligible policyholders can expect in refunds later this year. While the new law is implemented, it is important for policyholders to maintain and keep their current flood insurance policies. Allowing policies to lapse will leave policyholders financially unprotected. Policyholders who have questions about their flood insurance policies should contact their insurance agents. THESE POLICIES ARE ELIGIBLE FOR REFUNDS IF your building is in a flood zone beginning with the letter A, D, or V 1 ; New Policies For Some Pre-FIRM Buildings AND the building was constructed before your community s first Flood Insurance Rate Map (FIRM) became effective (known as pre-firm); AND the building has not been substantially damaged or improved; AND your policy first became effective on or after October 1, 2013, either because you purchased the property or because you purchased flood insurance on the property for the first time YOU MAY RECEIVE a one-time refund of the difference between the full-risk rate you paid and the subsidized rate that went into effect on October 1, Note that only about 1 percent of flood insurance policies fall into this category. Reinstated Policies After a Lapse for Some Pre-FIRM Buildings IF your building is in a flood zone beginning with the letter A, D, or V 1 ; AND the building was constructed before your community s first Flood Insurance Rate Map (FIRM) became effective (known as pre-firm); AND the building has not been substantially damaged or improved; AND your previously lapsed policy was reinstated at full-risk rates on or after October 4, 2012 YOU MAY RECEIVE a one-time refund of the difference between the full-risk rate you paid and the subsidized rate that went into effect on October 1, Note that in the future, subsidized rates will eventually apply ONLY to policies reinstated after being dropped because coverage was no longer required by your lender (e.g., you paid off your mortgage). Don t let your policy lapse. It could cost you more when you reinstate it. Policies That Increased by 25 Percent for Some Pre-FIRM Non-Residential 2 Buildings IF your pre-firm non-residential 2 building is in a flood zone beginning with the letter A, D, or V 1 ; AND you received a 25 percent increase upon policy renewal on or after October 1, 2013 YOU MAY RECEIVE a one-time refund if your premium increase was greater than 18 percent. Policies That Increased More Than 18 Percent for Other Residential and Non-Residential 2 Buildings IF the rate for your policy increased more than 18 percent at renewal on or after October 1, 2013; YOU MAY RECEIVE a one-time refund of the difference between the higher rate you paid and the maximum 18 percent rate increase allowed under the new law. AND your building does not fall into one of the exception categories in the next chart THERE ARE EXCEPTIONS, as noted in the next chart. Note that only about 13 percent of flood insurance policies fall into this category. The refund amount will typically be no more than 7 percent of your premium. 1 Flood insurance policyholders can determine their flood zones by referring to their policies. 2 Non-residential buildings include, but are not limited to, businesses, warehouses, schools, churches, farm buildings, and most hotels and motels. Contact your insurance agent if you have any questions about your building.

53 THESE POLICIES ARE NOT ELIGIBLE FOR REFUNDS IF your premium increase was for a pre-firm non-primary residence AND your policy was in effect before July 6, 2012 IF your premium increase applied to a pre-firm severely or repetitively flooded property that includes 1 to 4 family residences AND your policy was in effect before July 6, 2012 Policies for Pre-FIRM Secondary Homes Policies for Severely or Repetitively Flooded Buildings Policies That Increased Because of a Coverage Change YOU WILL NOT RECEIVE a refund, and your premium will continue to increase by 25 percent a year until it reaches full-risk rates. YOU WILL NOT RECEIVE a refund, and your premium will continue to increase by 25 percent a year until it reaches full-risk rates. IF your premium increased only as a result of lowering your deductible, or increasing the dollar amount of your coverage YOU WILL NOT RECEIVE a refund. Participating insurers (Write Your Own insurance companies and the NFIP Direct Servicing Agent) will send the refund checks to policyholders. Refunds apply only to premium rate increases. To keep current as FEMA implements these and other changes to the NFIP, visit fema.gov/flood-insurance-reform Policyholders who have questions about their flood insurance policies should contact their insurance agents. To find an agent, visit FloodSmart.gov June 2014

54 FLOOD INSURANCE FOR BUSINESSES: IMPACTS OF RECENT LEGISLATION The National Flood Insurance Program (NFIP) is in the process of implementing reforms required by the Homeowner Flood Insurance Affordability Act of 2014 and the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters). The 2014 law repeals or modifies some provisions of Biggert-Waters. However, it maintains the requirement that flood insurance rates for business properties in high-risk areas reflect true risk. This means that the subsidized rates that previously applied to some older business buildings will continue to be phased out. This fact sheet provides an overview of the changes business owners should expect, including a one-time refund for some policyholders. PHASING OUT FLOOD INSURANCE SUBSIDIES From 2008 to 2012, the average A flood zone is a geographical area shown on a Flood Hazard Boundary Map or a Flood National Flood Insurance Program Insurance Rate Map (FIRM) that reflects the severity or type of flooding in the area. Prior (NFIP) commercial flood claim was to Biggert-Waters, many older business buildings in Special Flood Hazard Areas and more than $87,000. Flood insurance Zone D, constructed before the effective date of the community s first FIRM and never continues to be an important substantially damaged or improved, were eligible for subsidized rates. On October 1, 2013, safeguard and financial planning tool the subsidized rates for these pre-firm buildings began to phase out. At renewal, nonresidential policyholders received a 25 percent rate increase. As required by both the 2012 for business continuity and recovery. and 2014 laws, the 25 percent rate increases are set to continue until rates reflect the property s true risk. However, a provision of the 2014 law temporarily slows that rate of increase. Currently, business properties and other non-residential buildings such as schools, churches, hospitals, and apartment buildings are included within a single non-residential policy rating class. The 2014 law caps increases for these other buildings at 18 percent a year. Until FEMA determines how best to identify and separately classify businesses, all non-residential properties including businesses will receive no more than an 18 percent annual increase starting October 1, HOW CHANGES TO SUBSIDIZED RATES AFFECT BUSINESS BUILDINGS IN HIGH-RISK AREAS 1 POLICY TYPE Policies for post-firm buildings, constructed in compliance with NFIP standards Existing policies for pre-firm business buildings Newly written policies for pre-firm business buildings or for newly purchased pre-firm buildings Policies for pre-firm buildings re-issued after a lapse Policies for business buildings in moderate- to low-risk areas Already pay full-risk rates. IMPACT ON RATES Policies can be renewed at subsidized rates. When FEMA is able to separate businesses from other properties, future rates will increase by 25 percent per year until reaching full-risk rates. Policies can be issued and renewed at subsidized rates. When FEMA is able to separate businesses from other properties, future rates will increase by 25 percent per year until reaching full-risk rates. Policies that lapsed due to a late renewal payment (received after the 30-day grace period but less than 90 days after expiration) can be re-issued and renewed at subsidized rates. When FEMA is able to separate businesses from other properties, future rates will increase by 25 percent per year until reaching full-risk rates. Also note that in the future, the exception allowing policies to be issued using subsidized rates after a lapse will only apply to policies that lapsed because coverage was no longer required by the lender (e.g., the mortgage was paid off). The bottom line: Don t let a policy lapse. It could cost you more when you reinstate it. Already pay full-risk rates. 1 Shown on the FIRM as a flood zone beginning with the letter A or V ; in addition, this affects pre-firm properties in Zone D.

55 REFUNDS Biggert-Waters required an immediate move to full-risk rates when a pre-firm building that had been eligible for subsidized rates was sold or purchased, when a policy was issued for the first time on a pre-firm building, or when a pre-firm-rated policy was reissued after being allowed to lapse. The new law reinstates subsidized rates under these conditions, and calls for refunds of the difference between the subsidized rates and the higher, full-risk rates that policyholders first paid. The new 18 percent cap on increases for non-residential policies will also result in refunds for some policyholders who experienced a 25 percent increase. Insurance companies will begin issuing the one-time refunds in October SURCHARGES A Congressionally mandated surcharge will be added to all policies to offset the subsidized policies and achieve the financial sustainability goals of Biggert-Waters. A policy for a business property will include a $250 surcharge. The fee will be included each year on all policies, including full-risk-rated policies and those in moderate- to low-risk areas, until all pre-firm subsidies are eliminated. The surcharge is not considered part of the premium and is not included in the annual caps on premium increases. Implementation of this surcharge is expected in AFFORDABILITY The 2014 law (Section 29) requires FEMA, within 18 months and then semi-annually, to report to Congress on the effects the pre-firm subsidy phase-outs and surcharge are having on small businesses, non-profits, houses of worship, and certain residences. If FEMA determines the rate increases and surcharges are having a detrimental effect on affordability, FEMA must submit appropriate affordability recommendations to Congress. REDUCE YOUR RISK, REDUCE YOUR RATE Flood risk and associated flood insurance rates vary by property, based on a number of factors. Two important factors that could affect your flood risk and business building rates are elevation and floodproofing. KEY FACTORS INFLUENCING FULL-RISK RATES FACTOR ELEVATION used for rating is the building s Lowest Floor Elevation compared to the Base Flood Elevation (BFE; the elevation reached by a flood with a 1 percent annual chance of occurring, known also as the 100-year flood) FLOODPROOFING to make a building watertight also influences flood insurance rates for businesses EFFECT ON RATES The higher the Lowest Floor Elevation (LFE) is above the BFE, the lower the risk and typically lower the rate, which may be lower than the subsidized pre-firm rate. However, a building whose lowest floor is below the BFE is at higher risk, and full-risk rates can be substantially higher than the subsidized rates. To learn the building s elevation, the owner will need to obtain an Elevation Certificate. To learn more about Elevation Certificates, go to fema.gov/national-flood-insurance-program-2/elevation-certificate, or talk to an insurance agent. With an Elevation Certificate, the agent can calculate the full-risk rate. Dry-floodproofing a building can lead to lower rates, if an engineer certifies that the design, construction methods, and materials make the building watertight to at least one foot above the BFE. The higher above BFE it can be certified, the lower the rates. To obtain the rating credit, the design professional must complete a Floodproofing Certificate form. To learn more, information can be found in the NFIP Technical Bulletin 3, Non-Residential Floodproofing Requirements and Certification found at: fema.gov/media-library/resources-documents/collections FOR MORE INFORMATION Learn more about flood risk and find an agent at FloodSmart.gov To keep current as FEMA implements changes to the NFIP based on recent legislation, visit fema.gov/flood-insurance-reform Policyholders who have questions about their flood insurance policies should contact their insurance agents. July 2014

56 Fact Sheet Federal Insurance and Mitigation Administration How April 2015 Program Changes Will Affect Flood Insurance Premiums The National Flood Insurance Program (NFIP) is in the process of implementing Congressionally mandated reforms required by the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) that repeal and modify the Biggert- Waters Flood Insurance Reform Act of 2012 (Biggert-Waters). The new law slows some flood insurance rate increases and offers relief to some policyholders who experienced steep flood insurance premium increases in 2013 and early Flood insurance rates and other charges will be revised for new or existing policies beginning on April 1, In addition to insurance rates, other changes resulting from Biggert-Waters and HFIAA will be implemented that will affect the total amount a policyholder pays for a flood insurance policy. Highlights of some of those changes follow. For full explanations and guidance, see WYO Bulletin (W-14053) and the Flood Insurance Manual. The changes taking place in April include an increase in the Reserve Fund Assessment, the implementation of an annual surcharge on all new and renewed policies, an additional deductible option, an increase in the Federal Policy Fee, and rate increases for most policies. Key changes include: Implementing annual rate changes that set rates using rate-increase limitations set by HFIAA for individual premiums and rate classes: Limiting increases for individual premiums to 18 percent of premium. Limiting increases for average rate classes to 15 percent. Mandatory increases for certain subsidized policyholders under Biggert-Waters and HFIAA. Increasing the Reserve Fund assessments required by Biggert-Waters. Implementing annual surcharges required by HFIAA. Guidance on substantially damaged and substantially improved structures, and additional rating guidance on buildings constructed before their communities first Flood Insurance Rate Maps (FIRMs) became effective (known as pre-firm structures). Implementing a new procedure for properties newly mapped into the Special Flood Hazard Area (SFHA) and existing Preferred Risk Policy Eligibility Extension (PRP EE), a cost-saving flood insurance coverage option for property owners whose buildings were newly mapped into an SFHA. The premiums will be the same as the PRP, which offers low-cost flood insurance to owners and tenants of eligible residential and non-residential buildings located in moderate- to low-risk areas for the first year (calculated before fees and assessments) to comply with provisions of HFIAA. Reformulating expense loading on premiums, reducing the expense load on the highest-risk policies as an interim step while investigating expenses on policies as required by Biggert-Waters. The changes will take effect on April 1, OCTOBER

57 Reserve Fund Assessment Increasing Biggert-Waters required the establishment of a Reserve Fund to help cover costs when claims exceed the annual premium collected by the NFIP. FEMA began collecting an assessment in 2013 to add money to the Reserve Fund. The Reserve Fund assessment initially applied to all policies other than PRPs in The assessment on those policies will increase in Starting in 2015, PRPs will begin contributing to the Reserve Fund. Policy 2014 Fee (as a percent of premium) 2015 Fee (as a percent of premium) Preferred Risk Policies (PRPs) 0% 10% Property Newly Mapped into the SFHA (Previous Preferred Risk Policies Eligibility Extension [PRP EE]) 0% 15% All Other Policies 5% 15% HFIAA Surcharge Begins HFIAA slowed the elimination of subsidies provided for in Biggert-Waters and amended most of the provisions mandating that certain policies transition immediately to full-risk rates. To compensate for the decrease in revenue, the new law calls for the addition of a surcharge on all policies that will be collected until, with limited exceptions, all subsidies are eliminated. The surcharge is a flat fee applied to all policies based on the occupancy type of the insured building and is not associated with the flood zone in which the building is located or the construction date of the building (e.g., pre- or post-firm). The surcharge also applies to a renter s contents-only policy based on the policyholder s occupancy of the building or unit. Occupancy Type Annual Surcharge Primary Residential: single-family and individual condominium units $25 Non-Primary Residential: single-family and individual condominium units $250 Multifamily Residential: condominium and other buildings $250 Non-Residential $250 OCTOBER

58 When a Map Change Occurs Current PRP EE policies and policies for insured buildings that are newly mapped into high-risk areas from moderate- to low-risk areas will be eligible to receive PRP rates for 1 year after the maps become effective. The Federal Policy Fee for these and existing PRP EE policies will increase to $45 to ensure the solvency and sustainability of the program. For these policies, the rates at renewal will increase no more than 18 percent each year. Grandfathering remains a cost-saving option for policyholders when new maps show their buildings in a higher-risk area (e.g., Zone A to Zone V; increase in Base Flood Elevation). What Is Grandfathering? When FIRM changes occur, the NFIP provides a lower-cost flood insurance rating option known as grandfathering, which is available for property owners who: Have flood insurance policies in effect when the new flood maps become effective and then maintain continuous coverage; or Have built in compliance with the FIRM in effect at the time of construction. To learn more, visit the NFIP s Grandfathering Fact Sheet at floodsmart.gov/floodsmart/pdfs/ Grandfathering+Fact+Sheet+for+Agents-2010.pdf. Other Changes Coming in April As required by HFIAA, the maximum deductible for a flood insurance policy will increase to $10,000 for singlefamily and two- to four-family dwellings. If used, the deductible must apply to both building and contents. For single-family homes, choosing the maximum deductible will result in up to a 40 percent discount from the base premium. It is important to remember that using the maximum deductible may not be appropriate in every financial circumstance and may not be allowed by lenders to meet mandatory purchase requirements. The Federal Policy Fee will increase by $1 for most policies other than the PRP, which remains $22. The exception is policies rated using the map change table, which will increase to $45 to ensure the solvency and sustainability of the program. A new rate table showing annual rate increases of 25 percent will be created for pre-firm buildings that have been substantially damaged or improved. However, repairs made to these structures typically must meet current building codes and, therefore, will usually receive a better rate using post-firm rate tables. In most cases, average rate increases for each rating class are capped at 15 percent; the annual surcharge and Federal Policy Fee are not included in the rate calculation and could result in the total amount charged a policyholder increasing by more than 18 percent. For full explanations and guidance, see WYO Bulletin (W-14053) and the Flood Insurance Manual. Read the latest WYO Bulletins for complete rate-change information at NFIPiService.com OCTOBER

59 Changes to the National Flood Insurance Program What to Expect Impact of changes to the NFIP under Homeowner Flood Insurance Affordability Act of 2014

60 More Changes are Coming to the NFIP On March 21, 2014, President Obama signed the Homeowner Flood Insurance Affordability Act of 2014 into law. Repeals and modifies certain provisions of Biggert-Waters Makes additional program changes Leaves some parts of Biggert-Waters intact. Policyholders SHOULD NOT cancel policies! FEMA is working with our Write Your Own (WYO) insurance company partners, Congress, others to implement. Prior to restoring and refunding premiums, the law requires FEMA to consult with its WYO insurance companies to develop and finalize guidance and rate tables within eight months. FEMA and the WYOs have up to eight months to implement. To date, NFIP has held at least seven conference calls and met in person with senior company representatives. 2

61 Key Priorities FEMA is actively analyzing and prioritizing implementation of the new Act. Initial Priority FEMA s priority continues to be implementation of changes to the NFIP s business processes to stop policy increases for certain subsidized policyholders as outlined in the Act. FEMA also plans to issue guidance in the weeks ahead for the Write Your Own insurance companies to begin issuing refunds to some policyholders. Key Priorities include: Refunds, Rates, and Surcharges Mapping Promote Mitigation Flood Insurance Advocate 3

62 Stop Rate Increases WYO Bulletin April 15, 2014 STOP RATE INCREASES Beginning May 1, 2014, for all new applications for flood insurance and renewal of flood insurance policies for properties covered by Section 3, FEMA will require its Direct Servicing Agent and Write Your Own companies to use the October 1, 2013 Pre-FIRM subsidized rates when more favorable for properties covered by Section 3. REFUND GUIDANCE DEVELOPMENT The use of the October 2013 rate tables is an interim step while FEMA develops new rate tables and guidance to process and issue refunds for policyholders covered by Section 3 who were charged full-risk premiums under Biggert Waters and are now eligible for Pre-FIRM subsidies. 4

63 Refunds, Rates, and Surcharges Premium Rates for Subsidized Policies New law requires gradual rate increases to properties now receiving artificially low (or subsidized) rates instead of immediate increases to full-risk rates Required to increase premiums for most subsidized properties by no less than 5 to 15 percent annually within a single risk class, but no more than 18% annually for a individual policyholder, annually until the class premium reaches its full-risk rate. Close to 80 percent of NFIP policyholders paid a full-risk rate and are minimally impacted by either law. With limited exceptions flood insurance premiums cannot increase more than 18 percent annually. 5

64 Refunds, Rates, and Surcharges Premium Rates for Subsidized Policies Exceptions to these general rules and limitations: Policies for the following properties will continue to see up to 25 percent annual increases as required by Biggert-Waters until they reach their full-risk rate: Older business properties insured with subsidized rates; Older non-primary residences insured with subsidized rates; Severe Repetitive Loss Properties insured with subsidized rates; Buildings that have been substantially damaged or improved. To enable new purchasers of property to retain Pre-FIRM rates while FEMA is developing guidelines, a new purchaser is allowed to assume the prior owner s flood insurance policy and retain the same rates until the guidance is finalized. 6

65 Refunds, Rates, and Surcharges Refunds FEMA is working closely with the WYO insurance companies to develop a timetable for processing refunds expediently. The new Act mandates refunds of the excess premiums for certain flood insurance policies affected by the Pre-Flood Insurance Rate Map (Pre- FIRM) subsidy elimination required by Biggert- Waters. Refunds will not affect all subsidized policyholders who received rate increases as directed by Congress in Biggert-Waters. WYOs will be permitted to retain the expense allowance in compensation for work completed. 7

66 Refunds, Rates, and Surcharges Mandatory Surcharges (Sec. 8) Applies to all policies A policy for a primary residence will include a $25 surcharge. All other policies will include a $250 surcharge. The fee will be included on all policies, including full-risk rated policies, until all Pre-FIRM subsidies are eliminated. Surcharges are not considered premium and are therefore not subject to premium increase caps required under Section 5 under the new Act. 8

67 Refunds, Rates, and Surcharges Grandfathering (Sec 4) HFIAA restores FEMA s ability to grandfather properties into lower risk classes. For newly identified properties, the law sets first year premiums at the same rate offered to properties located outside the SFHA (Preferred Risk Policy rates). With limited exceptions, flood insurance premiums cannot increase more than 18 percent annually. Grandfathered policy holders are not entitled to refunds. 9

68 Refunds, Rates, and Surcharges Pre-FIRM Primary Residence Policies in High-Risk Areas For Most Pre-FIRM Primary Residences in High-Risk Areas, Subsidized Rates Remain in Effect, but with Newly Required Minimum Increases and an 18 Percent Limit for Any Individual Policy Until Premiums Reach Their Full-Risk Rates. 1 POLICY TYPE IMPACT ON RATE Existing policies Policies can be renewed at subsidized rates. 2 Newly written policies Policies on newly purchased buildings Policies can be issued and renewed at subsidized rates. Policies can be issued and renewed at subsidized rates. Policies re-issued after a lapse 3 Policies for pre-firm buildings in high-risk areas that lapsed due to a late renewal payment (received after the 30-day grace period but less than 90 days after expiration) can be re-issued and renewed at subsidized rates. 1 Full-risk rates are determined using data from an Elevation Certificate. 2 Full risk rates could be lower than subsidized rates. 3 Buildings with lapsed policies are not eligible for the subsidy unless the lapse was the result of the policy no longer being required to retain flood insurance coverage. 10

69 Refunds, Rates, and Surcharges Pre-FIRM Building Policies in High-Risk Areas For Other Pre-Firm Buildings in High-Risk Areas, Subsidized Rates Continue, but Will Increase More Quickly to Reach Full-Risk Rates. POLICY TYPE Policies for non-primary residences (secondary or vacation homes or rental properties) IMPACT ON RATE 25% annual increases at policy renewal until premiums reach their full-risk rates. Policies for business buildings Future 25% annual increases at policy renewal. Policies for Severe Repetitive Loss properties 25% annual increases at policy renewal for severely or repetitively flooded properties that include 1 to 4 residences. 11

70 Refunds, Rates, and Surcharges Other Policies For Most Other Policy Types, Rates Will Increase by No More than 18 Percent for Any Individual Policy. POLICY TYPE Policies for newer ( post-firm ) buildings in high-risk areas Policies for buildings in moderateto low-risk areas Policies for buildings grandfathered in when map changes show higher flood risk Policies for buildings covered by Preferred Risk Policy Eligibility Extension (PRP EE) IMPACT ON RATES Not affected by subsidies; already paying full-risk rates. Not affected by subsidies; properties in these areas (shown as B, C, or X zones on flood maps) do not pay subsidized rates. Grandfathering remains in effect at this time. Buildings constructed in compliance with earlier maps or continuously covered by flood insurance stay in their original rate class when maps change or properties are sold. Properties continue to be eligible for lower, preferred-risk rates for the first year after a map change. Starting the following year, rates will increase by no more than 18% for any individual policy until premiums reach their full-risk rate. 12

71 Refunds, Rates, and Surcharges Affordability Study (BW12 and HFIAA) The new Act requires FEMA to draft an affordability framework, which is due to Congress 18 months after completion of the affordability study required by Biggert-Waters. Affordability Study required by Biggert-Waters is being conducted by the National Academies of Sciences, as specified in the Biggert-Waters law. The Affordability Study required by Biggert-Waters will inform FEMA s Affordability framework required by HFIAA. 13

72 Refunds, Rates, and Surcharges Draft Affordability Framework (Sec. 9 & 16) In developing the affordability framework, FEMA must consider: accurate communication to customers of flood risk, targeted assistance based on financial ability to pay, individual and community actions to mitigate flood risk or lower cost of flood insurance, impact of increases in premium rates on participation in NFIP, impact of mapping update on affordability of flood insurance. Framework will include proposals and proposed regulations for ensuring flood insurance affordability among low-income populations. 14

73 Refunds, Rates, and Surcharges Other Provisions The Act permits FEMA to account for flood mitigation of the property in determining a full-risk rate. (Sec. 14) (Requires Rulemaking) The Act mandates that FEMA develop a monthly installment payment plan for non-escrowed flood insurance premiums, which will require changes to regulations and the Standard Flood Insurance Policy contract. (Sec. 11) (Requires Rulemaking) The Act increases maximum deductibles for residential properties. (Sec. 12) The Act encourages FEMA to minimize the number of policies where premiums exceed 1-percent of the coverage amount, and requires FEMA to report such premiums to Congress. (Sec. 7) 15

74 Refunds, Rates, and Surcharges Small Business (Sec. 29) Sec. 29 requires FEMA to report to Congress on the effects the Pre-FIRM subsidy phase-outs and surcharge on small businesses, non-profits, houses of worship and certain residences. If FEMA determines the rate increases and surcharges are having a detrimental effect on affordability, FEMA must submit appropriate affordability recommendations to Congress. HFIAA Impacts to Businesses Business properties are included within the non-residential policy class. FEMA is actively working to determine how best to identify and classify businesses within the category. Older Business properties paying pre-firm subsidized rates will continue to see up to a 25 percent annual increases as required by Biggert-Waters until they reach their full-risk rate. This requirement was not changed as a result of the HFIAA. 16

75 Mapping Enhanced Communication and Outreach FEMA will continue Mapping activities Biggert-Waters requires FEMA to enhance coordination with communities before and during mapping activities and requires FEMA to report certain information to members of Congress for each State and congressional district affected by preliminary maps. Sec. 30 of HFIAA requires additional layers of enhanced notification and outreach to congress and other stakeholders. Technical Mapping Advisory Council Technical Mapping Advisory Council (TMAC) to review the new national flood mapping program activities authorized under the 2012 and 2014 flood insurance reform laws. FEMA will seek the TMAC s recommendations on meeting new requirements for the new mapping program including the identification of residual risk areas, coastal flooding information, land subsidence, erosion, expected changes in flood hazards with time, and others. The law requires the Administrator to certify in writing to Congress that FEMA is utilizing technically credible data and mapping approaches. 17

76 Mapping Flood Insurance Rate Map Appeals The Act lifts the $250,000 limit on the amount FEMA can spend to implement a program to reimburse property owners and communities for successful map appeals based on a scientific or technical error. The Act applies to statutory appellants who successfully appeal the Agency s proposed flood elevations and special flood hazard areas. Rulemaking is required to implement this provision The new law does not apply to Letter of Map Amendment (LOMA) and Letter of Map Revision (LOMR) requests, or any expenses associated with them. 18

77 Mapping Flood Protection Systems Authorizes FEMA to account for state and local funds used in the construction or restoration of a flood protection project when determining whether the project meets the statutory requirements to be eligible for discounted premiums. (Sec. 19) Permits FEMA to include the value of existing protection features in measuring adequate progress for the restoration of levees. (Sec. 19) 19

78 Mapping Fees Law exempts mapping fees for flood map changes due to habitat restoration projects, dam removal, culvert re-design or installation, or the installation of fish passages. (Sec. 22) Flood Control Features Law requires FEMA to consider the effects of non-structural flood control features, such as dunes, and beach and wetland restoration when it maps the special flood hazard area. (Sec. 27) 20

79 Flood Insurance Advocate Educates on: Individual flood risks; Flood mitigation; Measures to reduce rates through effective mitigation; The rate map review and amendment process; Changes in the program as a result of any newly enacted laws. Assists in understanding how to appeal preliminary rate maps and implementing measures to mitigate evolving flood risks; Assists in developing regional capacity; Coordinates outreach and education with local officials and community leaders in areas impacted by map amendments and revisions; and Aids potential policy holders in obtaining and verifying accurate rate information when purchasing or renewing a policy. 21