Course Material

The National Flood Insurance Program

Introduction

Section I

Course Material

The following course material reflects input gathered by FEMA (Federal Emergency Management Agency) from state insurance regulators, insurers that sell flood insurance under the National Flood Insurance Program, the Independent Insurance Agents and Brokers of America, the National Association of Professional Insurance Agents, and the Coalition of Exclusive Agent Associations. The intent of this course is to adequately educate an agent wishing to sell such products. Agents should continue to seek out education on flood insurance even when their state requires such a course only once.

Most consumers would not think of going without fire insurance for their home, but most never consider the need for flood insurance. It is important to know:

· Homeowners’ policies do NOT cover flooding.

· Flood insurance may be purchased no matter where the individual lives, not just in flood zones.

· Flooding can happen anywhere. In fact, all 50 states have experienced it.

· The average flood policy nationally costs $1 per day, although that is an average cost. Some areas are much less while others are more.

· No one should rely on disaster assistance. Flooding is often localized, and disaster assistance is usually not available. Only if there is a Presidential Declaration will disaster assistance be available. Only 10 percent of natural disasters will be declared.

Acronyms You Should Know

Flood insurance and related subjects commonly use acronyms. Therefore, it is important that you understand their meaning.

ACV Actual Cash Value

BFD Base Flood Depth

BFE Base Flood Elevation

CBRA Coastal Barrier Resources Act of 1982

CBIA Coastal Barrier Improvement Act of 1990

CBRA Coastal Barrier Resources Act of 1982

CBRS Coastal barrier Resources System

COLMA Conditional Letter of Map Amendment

COLMR Conditional Letter of Map Revision

CRS Community Rating System

FEMA Federal Emergency Management Agency

FHBM Flood Hazard Boundary Map

FIRM Flood Insurance Rate Map

FIS Flood Insurance Study

ICC Increased Cost of Compliance

LFE Lowest Floor Elevation

LODR Letter of Determination Review

LOMA Letter of Map Amendment

LOMR Letter of Map Revision

MPPP Mortgage Portfolio Protection Program

NFIP National Flood Insurance Program

NFIRA National Flood Insurance Reform Act

OPA Otherwise Protected Areas

PRP Preferred Risk Policy

RCBAP Residential Condominium Building Association Policy

RCV Replacement Cost Value

SDF Special Direct Facility

SFHA Special Flood Hazard Area

SFIP Standard Flood Insurance Policy

WYO Write Your Own Program

NFIP Background

The National Flood Insurance Program has suggested six ways that state insurance departments can support agent and consumer education programs. State Insurance Commissioners play a crucial role in developing state policy for their state’s agents.

The NFIP suggested that each state:

1. Mandate continuing education requirements for agents who would like to sell flood insurance policies. If an agent has not completed flood education, he or she could not sell such policies. Agents are the individuals most likely to suggest various types of insurance. An agent who has not received CE in flood insurance policies is not, therefore, likely to suggest that the consumer purchase the coverage. Education should be continuous to ensure current information is always provided to the consumer. The Flood Insurance Reform Act of 2004, Public Law 108-264, Section 207 mandates minimum training and education requirements for all insurance agents who sell NFIP flood insurance policies. The Federal Register notice (Volume 70, No. 169) published September 1, 2005 describes the flood insurance course content that the states should include when establishing or updating their flood insurance training requirements. Workshop schedules and other information about training opportunities through FEMA are available at https://www.fema.gov/national-flood-insurance-program-training-workshops-and-conferences

2. Establish an NFIP education plan for department staff and for licensing new agents and brokers. Following a flood, FEMA staff members commonly hears consumers complain that their agents never offered them flood insurance, nor informed them of the dangers of floods in their area.

3. Link the state’s website to the FEMA/NFIP FloodSmart and Agent Training websites. These sites do not provide continuing education credit, but they do provide training on flood insurance. Upon successful completion of the mastery exam at the end of the basic training module, the insurance agent receives a Certificate of Completion. Although states are not required to accept it, they are urged to do so.

4. Evaluate prospective flood insurance training providers and reward diligent agent training efforts. With the expected increase in weather-related disasters it is important that agents be educated enough to suggest the types of coverage their clients may need.

5. Keep track of agent compliance with flood training requirements.

6. Develop an outreach program to educate the state’s consumers about their potential need for flood insurance. Since agents may not be educated themselves enough to advise their clients, the state may need to step forward to educate consumers. Many states are already doing that.

The Mitigation Division, a component of the Federal Emergency Management Agency (FEMA) manages the National Flood Insurance program, commonly referred to as NFIP. The three components of the NFIP are flood insurance, floodplain management, and flood hazard mapping.

Nearly 20,000 communities across the United States and its territories participate in the NFIP by adopting and enforcing floodplain management ordinances to reduce future flood damage.[1] In exchange, the NFIP makes Federally backed flood insurance available to homeowners, renters, and business owners in these communities. Such participation is voluntary.

Flood insurance was designed to provide an alternative to disaster assistance to reduce the escalating costs of repairing damage from floods. When communities implement sound floodplain management requirements, including purchase of flood insurance by property owners, flood damage costs are substantially reduced. When buildings are built according to NFIP building standards, they suffer approximately 80 percent less damage annually than those not built in accordance with these standards. Additionally, for every $3 paid in flood insurance claims, $1 was saved in disaster assistance payments.

Another important function of the National Flood Insurance Program is the mapping of floodplains. By identifying areas that are at risk for flood, an awareness of hazards helps consumers identify areas they may wish to avoid or identifies the need to purchase flood insurance.

Floodplain management is the operation of a community program of corrective and preventative measures for reducing flood damage.[2] Although there are varying measures that are used, generally they include requirements for zoning, subdivision and building, and special purpose floodplain ordinances. When a community adopts and enforces floodplain management ordinances of NFIP, especially as they pertain to new construction, communities are able to avoid some of the flood hazards that might otherwise not be avoided and it makes flood insurance available to home and business owners.

The Community Rating System (CRS) was created to encourage communities to establish sound floodplain management programs that meet or exceed those of the NFIP. This program provides communities with discounts on flood insurance rates.

The Community Assistance Program (CAP) is a product-oriented financial assistance program directly related to the flood loss reduction objectives of the National Flood Insurance Program (NFIP). In order to be eligible for this Federally funded assistance program, states must participate in the NFIP. CAP is intended to help states identify, prevent, and resolve floodplain management issues in communities before a flood actually happens.

Federal Emergency Management Agency (FEMA)

The Federal Emergency Management Agency, commonly known as FEMA, was originally an independent agency that became part of the new Department of Homeland Security in March of 2003. It is the responsibility of FEMA to respond to disasters, whether it happens to be a hurricane, an earthquake, or even terrorism. Any disaster that has physical and/or financial consequences will fall under FEMA’s authority. It is FEMA’s responsibility to lead the efforts to prepare the nation for all hazards and effectively manage federal response and recovery efforts following a disaster. They also have the responsibility of managing the National Flood Insurance Program.

FEMA has statutory authority. Robert T. Stafford Disaster Relief and Emergency Assistance Act, PL 100-707, signed into law November 23, 1988 amended the Disaster Relief Act of 1974, PL 93-288. This act constitutes the statutory authority for most Federal disaster response activities, especially as they pertain to FEMA and FEMA programs.

FEMA has more than 2,600 full time employees working at FEMA headquarters in Washington D.C., at regional and area offices, the Mount Weather Emergency Operations Center, and the National Emergency Training Center in Emmitsburg, Maryland. There are additional 4,000 or so standby assistance employees who are available for deployment following a disaster. FEMA may work in partnership with other organizations that are part of the nation’s emergency management system. This would include state and local emergency management agencies and the American Red Cross. The general contact address for FEMA is 500 C Street SW in Washington D.C. 20472.

FEMA was created from the Congressional Act of 1803, which is considered the first piece of disaster legislation. It provided assistance to a New Hampshire town following an extensive fire. Successive legislation (more than 100 of them) followed in response to hurricanes, earthquakes, floods, and other natural disasters.

Eventually, a federal approach to such disasters became favored by most of the population. By the 1930s, The Reconstruction Finance Corporation was given authority to make disaster loans for repair and reconstruction of certain public facilities following an earthquake. Eventually this also covered other types of disasters. In 1934, the Bureau of Public Roads was given authority to provide funding for highways and bridges damaged by natural disasters. The Flood Control Act was passed that gave the U.S. Army Corps of Engineers greater authority to implement flood control projects, such as dams. It eventually became evident that the piecemeal approach to disaster assistance needed something to pull all pieces of legislation together, so the President was authorized to coordinate activities between federal agencies.

The 1960s and early 1970s brought massive disasters requiring major federal response and recovery operations by the Federal Disaster Assistance Administrations, established within the Department of Housing and Urban Development (HUD). There were both hurricanes and earthquakes: hurricane Carla in 1962, Hurricane Betsy in 1965, Hurricane Camille in 1969, and Hurricane Agnes in 1971. Earthquakes in 1964 in Alaska and one in San Fernando in Southern California in 1971 caused severe damage in addition to the hurricanes. In 1968, the National Flood Insurance Act gave new flood protection to homeowners. In 1974 the Disaster Relief Act established the process of Presidential disaster declarations.

Historically the Federal government has tried to control the flow of the nation’s waterways by using structural methods such as dams, levees, and dikes. While there was some success with these methods, they could not prevent other types of flooding disasters such as Hurricane Katrina brought. Every time a hurricane or other disaster occurred, they brought with them severe financial losses, which had to be at least partially covered by Federal disaster assistance programs.

These problems were compounded by the fact that flood insurance was not readily available to people in the private sector. The insurance industry was reluctant to provide coverage for the peril of flood since it was catastrophic in nature and it also tended to produce an adverse selection of risk. Obviously, flood insurance was likely to be purchased by those most prone to flooding rather than those who were unlikely to experience the event.

Community Participation

While community can mean many things, as it relates to flood insurance, it means a political entity that has the authority to adopt and enforce floodplain management ordinances for its jurisdiction. Therefore, community would mean a town, city or rural jurisdiction such as a county, borough, or parish.

The floodplain management requirements include the requirement of community evaluation of the building site prior to a building being erected. The evaluation would include the location of the building site in relation to the floodplain or floodway. Since there is no federal law regulating enforcement of flood building codes, enforcement of floodplain management rules is the responsibility of the different communities. Each state delegates enforcement authority to the various types of communities within its jurisdiction.

Flood insurance is not necessarily available everywhere; availability is tied to mitigation and floodplain management by the community. Once a community determines their potential for flooding and their need to make flood insurance available to those who live there, it contacts FEMA and requests admission to the NFIP. Anyone wishing to see if a particular community participates in the National Flood Insurance Program can go to https://www.fema.gov/national-flood-insurance-program-community-status-book. Community participation determines whether buildings are eligible for Regular Program coverage limits, reduced limits if in the Emergency Program, subject to surcharge if on Probation or if the policy will be non-renewed should the community be suspended.

Emergency Program

Once a community agrees to adopt and enforce minimum floodplain management ordinances, it will likely be admitted into the NFIP Emergency Program. Acceptance is the first stage of the Program.

In the Emergency Program there is a limited amount of flood insurance available for all insurable buildings and their contents and, if appropriate, a map identifying known floodplains will be issued. Rates are broken down into either (1) Residential or (2) Non-residential.

During the Emergency phase, FEMA will perform a Flood Insurance Study. This study includes an in-depth evaluation of the community’s flood hazards. It will identify the floodway and floodplain, and establish a Base Flood Evaluation, called a BFE.

The Flood Insurance Study will provide information for a Flood Insurance Rate Map, called FIRM. This map shows greater detail regarding the floodplain and identifies the various flood risk zones. Both the Flood Insurance Study and the Flood Insurance Rate Map are presented to the community for approval. If the community agrees with the conclusions of the two, it may adopt them as they are written. Or, if the community does not completely agree with them, it may provide additional scientific data to amend them.

When FEMA and the community agree with the Flood Insurance Study and the Flood Insurance Rate Map the community must then decide if it wishes to continue participating in the NFIP. It is possible to withdraw at this time if the community wishes to. On the other hand, if the community decides to continue it must formulate and adopt more comprehensive FEMA floodplain management ordinances and agree to enforce them.

At this point, the community must establish a building permit system. No construction, including remodeling, is permitted unless the contractor or owner first obtains a building permit from a designated floodplain administrator or community official.

Before issuing the building permit, the community official must determine if the proposed building site is inside or outside of a Special Flood Hazard Area. If the building site is outside of the area, no flood mitigation restrictions will apply. If the building site is located within a Special Flood Hazard Area, however, the community official or administrator will require the building to be elevated or flood proofed if it is a commercial building to the standards required in the community’s floodplain management ordinance.

This system helps to accomplish the mitigation goals of the program. It allows the community to control construction in flood prone areas. At the very least it requires that buildings be elevated, or flood proofed above the anticipated depth of water in a base flood event.

Regular Program

Once a community adopts the floodplain ordinances, it qualifies for admission into the National Flood Insurance Program (NFIP) Regular Program. The regular phase of the Program allows for increased amounts of insurance coverage.

It is necessary for the community to continue to enforce its floodplain ordinances if it wishes to remain in good standing in the NFIP. There will be periodic visits from FEMA and the state floodplain management coordinators to verify that enforcement of the ordinances is occurring. Should the community be unable or unwilling to enforce the ordinances it could be placed on probation. During the probationary period, the community is given an opportunity to correct any deficiencies that were cited. When a community is placed on probation, all new and renewal policies are subject to a $50 surcharge.

If the deficiencies have not been corrected by the end of the probation period, the community could be suspended from the NFIP by FEMA. When a community is suspended, in force policies become non-renewable and new policies may not be written.

The Flood Disaster Protection Act of 1973 and the NFIRA of 1994 limits the availability of loans and disaster assistance for buildings located in Special Flood Hazard Areas (SFHA) unless the borrower purchases and maintains flood insurance coverage on the buildings for the term of the loan. If it is a disaster grant, the borrower must maintain flood insurance coverage for as long as they own the property. Flood insurance would not be available for buildings located in non-participating communities so participation is desirable. If a participating community is suspended from the NFIP, it then becomes non-participating so building owners could no longer be eligible for federal disaster assistance, federally guaranteed or federally regulated loans. It is not surprising therefore, that suspension can adversely affect the community. An individual that wishes to find out if his or her community participates may go to the Community Status Book (which lists participating and mapped non-participating communities) by state at www.fema.gov. It is available at that web address through the FEMA Map Service Center.

Community Rating System

The National Flood Insurance Program (NFIP) Community Rating System (CRS) is not mandatory; it is a voluntary incentive program that recognizes and encourages community floodplain management activities that exceed the minimum NFIP requirements. The premium for flood insurance is discounted since there is reduced flood risk as a result of community actions aimed at meeting the Community Rating System goals of:

1. Reducing flood losses;

2. Facilitating accurate insurance rating; and

3. Promoting the awareness of flood insurance.

An individual wishing to gain additional information concerning the community’s CRS status and premium rates may go to http://fema.gov/nfip/crs.shtm.

Building Eligibility

Even when a community is participating in the National Flood Insurance Program, all buildings will not necessarily be insurable. Buildings in violation of floodplain management ordinances, new construction located in coastal barrier resource areas, buildings built over water, container type buildings, and buildings partially underground may not qualify. Buildings that are in compliance will have met specific requirements. Exact criteria may be accessed in the Flood Insurance Manual.

Many types of buildings can be eligible, including manufactured homes and travel trailers located in high flood risk areas, as long as they meet the criteria that applies to them. The eligibility or ineligibility of buildings depends upon meeting specific criteria as set down by the NFIP for flood insurance qualification. A building’s status can be determined by comparing the specific building risk factors with the underwriting criteria in the General Rules Section of the Flood Insurance Manual. Additional assistance can be obtained from the underwriting department of the Write Your Own Company or Direct Side Facility, if applicable. Most buildings will be eligible if they are constructed in compliance with the community’s building requirements and are located in an NFIP participating community.

Coastal Barrier Resources System and Other Protected Areas

There are specific areas where development is discouraged. The Coastal Barrier Resources Systems (CBRS) and Other Protected Area (OPA) boundaries were mapped out and established by the Department of Interior and the U.S. Fish and Wildlife Service (FWS). Flood insurance may not be available for buildings and their contents located in these locations. Such areas are designated by Congress to protect the coastline. The Coastal Barrier Resources System (CBRS) hopes to discourage development in those specially designated areas. An individual may not purchase a flood policy in the CBRS unless the structure was built prior to the area designation. These areas are shown on Flood Insurance Rate Maps (FIRMs) with backward slating diagonal lines patterns, both solid and broken, and are commonly referred to as “CoBRA Zones.” Agents writing flood insurance policies must take special care for any location within these areas. Agents may consult the Community Status Book in NFIP Flood Insurance Manual’s listing of communities at htt://fema.gov/fema/csb.shtm, which have identified OPAs and CBRS areas.

These designations are not just about protecting property located in flood zones. FEMA mitigation measures, such as the elevation of buildings, can offer some protection from flood, but the damage done to fragile coastlines by development has little to do with flooding. Aquatic habitats, wetlands, marshes, estuaries, and inlets experience unavoidable damage when human populations move in. These areas are home for wild life and ecosystems that support local fishermen and provide recreational use; they can be lost forever if they are not properly protected. Coastal barriers are unique landforms that also serve as the mainland’s first line of defense against the impacts of coastal storms and erosion. While older structures may exist in such areas, it is not likely that new construction would be allowed there. In fact, by law, federally regulated mortgage lending and Federal disaster assistance is not available in these areas. This includes federally backed flood insurance for new construction or substantial improvements in CFRS or OPAs.

There are some exceptions to the availability of federally backed flood insurance in CFRS and OPAs. Eligibility for Federal flood insurance depends upon whether the community where the building is located has Coastal Barriers Resources Act of 1982 (CBRA) or the Coastal Barrier Improvement Act of 1990 (CBIA) designated areas. Under the 1982 Act a building in a CBRS area is eligible for coverage if the following requirements are met:

1. A legally valid building permit for the construction was issued prior to October 1, 1983; and

2. The building was built (walled and roofed) prior to October 1, 1983; and

3. The building was not substantially improved or substantially damaged on or after October 1, 1983.

Eligibility under the 1990 Act for buildings in a CBRS area or Other Protected Areas requires:

For CBRS areas:

· A legally valid building permit for the construction of the building that was issued prior to November 16, 1990; and

· The actual start of construction of the building was prior to November 16, 1990; and

· The building was not substantially improved or substantially damaged on or after November 16, 1990.

For OPAs:

· A legally valid building permit for the construction of the building that was issued prior to November 16, 1991; and

· A building in the OPA was built (walled and roofed) no later than November 16, 1991; and

· The building was not substantially improved or substantially damaged after November 16, 1991.

· Or, the building is used in a manner consistent with the purpose for which the area is protected, regardless of the date of construction.

Neither of these prevents private development, financing or private flood insurance, if it is available in these areas. Of course, any development is subject to all applicable state and local laws, regulations and building codes.

Who Needs Flood Insurance?

Flooding happens every day in regions all across our country. A flood can happen even in areas that might not seem at risk. Floods do not always result from hurricanes; they can happen due to extreme conditions, such as rain, rapid spring melts, or high river conditions. It is not necessary to live in a coastal area to experience a flood. In 2004, Pennsylvania, which has no ocean coastline, received more than $175 million in flood insurance payments – second only to Florida.[3] Every property owner should consider the threat of floods when insuring their homes and businesses.

The floods we tend to read about follow such events as hurricanes or nor’easters, but more floods happen every day resulting from small, localized events. Everyone must realize that it only takes a few inches of water in a home to cause thousands of dollars in damage. In fact, flooding in the United States is the number one natural hazard.

Homeowner’s insurance will not cover flooding; it is necessary to protect their home and property by purchasing a flood insurance policy separately through their local insurance agent. As long as the individual’s hometown is an NFIP community, most people, including those who rent, can get flood insurance. The National Flood Insurance Program wants consumers to understand the flood insurance basics, including:

· You can get flood insurance nationwide.

· You can get flood insurance if you live in a floodplain or high-flood-risk area.

· You can get flood insurance if you live outside a floodplain, or low to moderate flood risk area (and at a lower cost).

· You can get flood insurance if your property has experienced a past flood.

· You can get flood insurance from agents in your area.

· You can buy flood insurance even if your mortgage broker does not require such coverage.

What does this mean? It means that just about everyone should consider purchasing flood insurance. Over 25 percent of the NFIP claims were paid in low-to-moderate flood risk areas, such as zones B, C or X.

Mandatory Purchase of Flood Insurance in High Flood Risk Zones

The Flood Disaster Protection Act of 1973 placed the requirement on Federally regulated lending institutions to ensure that loans secured by buildings located in high flood risk areas are protected by flood insurance. Lenders call these areas the Special Flood Hazard Areas (SFHA). They are Zone A and V. The National Flood Insurance Reform Act of 1994 further strengthened the requirements. Agents may view the Mandatory Purchase of Flood Insurance Guideline booklet online at http://www.fema.gov/nfip/mpurfi.shtm. The booklet is a guide for lending institutions, but it can help the flood insurance agent too. Agents provide important information to lenders concerning their flood insurance needs that may go beyond meeting the minimal mandatory requirements established by law.

Recommended in Moderate and Low Flood Risk Zones

Individuals may go online to determine their personal flood risk. Floodsmart.gov provides this information to anyone wishing to access it online. By entering property information, they will show the relative flood risk, links to flood insurance resources, and a list of licensed insurance agents serving the area. As we have previously stated, flood insurance is recommended even in low to moderate flood risk zones.

Why Flood Insurance is Better Than Disaster Assistance

The President must declare a major disaster before most forms of federal assistance is available. The most common form of federal disaster assistance is a Small Business Administration (SBA) low-interest disaster assistance loan, which must be repaid with interest. The average federal Individuals and Households Program (IHU) award is around $4,000. To qualify for federal Home Repair Assistance, the individual’s home must have eligible relatively minor damage that can be quickly repaired. Individuals cannot qualify for federal Rental Assistance unless their home has been heavily damaged or destroyed.

Disaster assistance loans from SBA are usually costlier than flood insurance premiums, so it makes sense to purchase flood policies.

Flood Maps and Zone Determinations

Section II

Insurance agents, insurers, lenders, and other users make flood zone determinations by reviewing Flood Insurance Rate Maps (FIRMs) that are maintained by the community. Outside companies may be utilized that specialize in flood zone determinations. Many insurers provide flood zone determinations for their own agents to aid them in writing such policies.

Lenders and those that contract with lenders use Standard Flood Hazard Determination Form, called a SFHDF, to document community status, the flood zone and the Base Flood Elevations. Generally, the borrower may also have a copy of the SFHDF. The elevation of the building’s lowest floor and the BFE information is not necessary for Pre-Flood Insurance Rate Map (FIRM) buildings, unless they happen to have been elevated and it is to the advantage of the property owner to use the elevated premium rating. Elevation information is not applicable in low-to-moderate flood risk zones B, C, and X.

Flood Hazard Boundary Map (FHBM)

The Flood Hazard Boundary Map (FHBM) is the initial flood map issued by FEMA. It identifies areas in the community that are considered at high risk of flooding, identified as Special Flood Hazard Areas (represented by darkly shaded areas on the map).

The “100-Year Flood” That Isn’t

Most of us have heard references to a “100-year flood.” It refers to a flood with a 1 percent or greater chance of being equaled or exceeded during any given year. Although it is commonly called the 100-year flood, the more accurate term is Base Flood. Special Flood Hazard Areas (SFHA) are subject to base floods. Many people would believe that a 100-year flood happens every 100 years, but that is not the case. In fact, Base Floods have a 26 percent chance of happening during any given 30-year period. What is the average mortgage length? Thirty years. Therefore, any individual with an average mortgage could experience what we refer to as a 100-year flood. It is not surprising that those with homes located in SFHAs are required to purchase flood insurance by their lenders. In general, a bank should not make, increase, renew, or extend any loan for property in a special hazard area unless flood insurance is in place for the term of the loan.

Flood Insurance Rate Map (FIRM)

Regular Program communities use the more detailed Flood Insurance Rate Map, called a FIRM. The primary purpose of a FIRM is to provide information needed by agents, lending institutions, community officials, flood zone determination companies, and private citizens who need to know:

1. The specific location of a building within a SFHA;

2. The flood zone assigned to a specific building location; or

3. The Base Flood Elevation of a building.

Zones beginning with the letters A and V note SFHAs on the map. The dark shading also identifies them. Zones B, C, and X are not considered to be Special Flood Hazard Areas and indicate areas of moderate to minimal hazard subject to flooding only from severe storm activity or local drainage problems. Light shading and non-shading indicates these areas on the map. Lenders do not generally require flood insurance on buildings located in the moderate to minimal hazard zones. No one should think that property located in the moderate to minimal hazard zones never flood, however, because they could. Floods happen everywhere.

Pre-FIRM/Post FIRM Defined

Pre-FIRM means before Flood Insurance Rate Map. It is defined as construction or substantial improvement on a building that started on or before December 31, 1974, or before the effective date of the initial FIRM of the community, whichever is later. Pre-FIRM structures were built when there was no Flood Insurance Rate Map to show the locations of floodplains or the BFE. As a result, there were no requirements for building structures to any specific elevation. Rates for Pre-FIRM buildings are based on the flood risk zone they are located in.

There can be exemptions based on circumstances that previously existed. This is called grandfathering.

Post-FIRM means after Flood Insurance Rate Map. It is defined as construction or substantial improvement on a building that started on or after the effective date of the initial FIRM of the community or after December 31, 1974, whichever is later. These structures located in SFHAs are required to be built at or above BFE. Post-FIRM rates are based on the relationship of the lowest floor to the BFE.

To determine this relationship, the owner would obtain an NFIP Elevation Certificate from a land surveyor, architect, or engineer. The Elevation Certificate provides the flood zone, BFE, and measurements that relate to the building and ground elevations. The insurance agent refers to these measurements when determining the lowest floor used for premium rating. More information can be obtained from the Special Certification section of the Flood Insurance Manual. An Elevation Certificate is required when rating a Post-FIRM structure located in a SFHA. An Elevation Certificate is not required for rating in unnumbered A zones.

If an agent is insuring a Pre-FIRM building where its lowest floor meets the minimum BFE requirement, the insured may opt to obtain the Elevation Certificate. It will verify that the lowest floor meets the requirements allowing the insured to benefit from the use of Post-FIRM ratings. Elevation Certificates are not used when rating buildings located in B, C, or X zones.

Even though the agent has the community status, the flood hazard zone, and whether the structure was built before or after FIRM, he or she will still need to know:

1. The building Occupancy Type;

2. The number of floors in the structure and whether or not one of them is a basement;

3. The amount of coverage;

4. The deductible amount;

5. Increased Cost of Compliance (ICC) Coverage, which is mandatory; and

6. The Community Rating System (CRS) Discount.

The Agent’s Premium Calculation Pad (NFIP form number 054 11/97) will help him or her gather this information prior to completing the application. Completing a flood application is not a difficult process. It consists of similar steps as those taken to complete any insurance application. However, like all types of individual policies, it is important to understand the forms. In the upper right corner of the form, check the appropriate box to indicate if the application is for a new policy or renewal of an existing policy. If it is a renewal, enter the current 10-digit NFIP policy number.

Check the appropriate box to indicate who should receive the renewal bill. If “Bill first mortgagee” is checked, complete the First Mortgagee section. If “Bill second mortgagee,” “Bill loss payee,” or “Bill other” is checked, provide mailing instructions in the “Second Mortgagee or Other” section.

Enter the policy effective date and policy expiration date, using the month-day-year format. The effective date of the policy is determined by adding the appropriate waiting period to the date of application listed in the “Signature” section. The standard waiting period is 30 days. There are a couple of exceptions to the standard waiting period, which are stated in this course.

The agent will enter his or her name, agency name and number, address, city, state, zip code, telephone number, and fax number. The producer’s tax I.D. number or Social Security Number will be required on the application.

The insured’s mailing information, including name, mailing address, and telephone number, must be entered. The insured’s tax identification number and Social Security number are optional. If the insured’s mailing address is a post office box or a rural route number, the “Property Location” section on the application must be completed. This would also be true if the mailing address is different from the actual location of the insured property. Be sure to enter the name of the county or parish where the property is located.

Check the YES-box if flood insurance is being required for disaster assistance. Identify the Government disaster agency and enter the complete name and mailing address of that agency. Enter the insured’s case file number, tax I.D. number, or Social Security number. If the NO-box were checked, no further information would be required.

When first and second mortgages are involved, enter the name, mailing address, telephone number, and fax number of the mortgagees. Enter the loan number if it is available. If not available, the loan number must be added to the policy by submitting a General Change Endorsement form once it becomes available.

If more than one additional mortgagee or Disaster Assistance Agency exists, provide the requested information on the agency’s letterhead and attach it to the application. Provide the disaster assistance case number or the insured’s Social Security number in each case.

For condominium association applications, the mortgages for the individual condominium unit owners must not be entered here. The General Property Form and RCBAP provide coverage for the entire building and the real property elements, including all units within the building and the improvements that are made in individual units.

The agent will be entering the name of the county or parish where the property is located. Check YES if the property is in an unincorporated area of a county; otherwise check the NO-box. The mailing address may or may not reflect the community where the property is actually located. Agents should not rely on the mailing address for this determination instead verifying actual property location (never assume). Due to possible FIRM changes, also do not rely on information from a prior policy.

Enter the community identification number, map panel number, and revision suffix for the community where the property is located. When there is only one panel, such as a flat map, the community number will consist of only six digits. Use the Flood Insurance Rate Map (FIRM) in effect at the time of premium calculation and application completion. Not all communities will have been assigned NFIP community numbers. If the community is not assigned an NFIP community number because they are not participating in the National Flood Insurance Program, no policy may be written.

Community number and status may be obtained by calling the NFIP toll-free number or by consulting a local community official.

Check the YES-box if the property is located in a Special Flood Hazard Area. If not, check the NO-box.

Enter the FIRM zone in the space indicated. Leave this area blank if the program type is Emergency.

Check R if the community is in the Regular Program or E if the community is in the Emergency Program. The agent must determine if the community is located in a CBRS or OPA.

If the community program type is Regular and the building is Pre-FIRM construction, enter the FIRM zone if this information is available. Otherwise, the agent will enter the word “Unknown” and follow the alternative rating procedures. Do not use “Unknown” for manufactured homes or other buildings located in a community having rate Zones of V or V1-30 (VE).

There will be building information required on the application. For building occupancy indicate the type of occupancy: single family residential, 2-4 family residential, other residential or non-residential. If a basement exists, enter that information. Remember that a basement means more than the standard day-to-day meaning your clients use. For our purpose, it includes a floor that is below ground on all sides, which could include a sunken room. If an enclosure is the lowest floor for rating, use the “With Basement/Enclosure” Rate Table to determine the applicable rate.

If the building type is a rowhouse or townhouse being covered under an RCBAP, check “Townhouse/Rowhouse (RCBAP Low-rise Only. A manufactured home or trailer on a foundation should be checked under “Manufactured (Mobile) Home/Travel Trailer on Foundation” no matter what size it is. Otherwise, indicate the number of floors in the entire building, including basements where applicable.

Note any small business risk by checking either YES or NO.

If the building being insured is not a single-family dwelling, indicate the number of units. For Condos indicate whether the condominium coverage is for a single condominium unit or for the entire building. For Residential Condominium Building Association Policy (RCBASP), enter the total number of units within the building and indicate whether it is a high-rise or low-rise.

Enter the estimated replacement cost value for single-family principal residences, residential condominium buildings and all V-Zone buildings. Include the cost of the building foundation when estimating replacement costs. It should be noted whether or not the building is the policyholder’s principal place of residence.

If the building is in the process of construction, be sure to note this on the flood application.

The application will ask if Government Ownership of Property is involved. Obviously, the agent would check the appropriate box.

Enter the deductible amount for the building and/or its contents.

Describe the building and its use for other than 1-4 family dwellings. This box must be completed for all manufactured or mobile homes and travel trailers. Enter the year, make, model, and serial number. For manufactured and mobile homes indicate whether it is a doublewide or triple-wide structure. It should also be noted whether or not it is properly anchored. A properly anchored structure is defined as being adequately secured to prevent flotation, collapse, or lateral movement through a tie-down method that is approved by the local community.

In the Construction Data section, check one of the five blocks available and enter the appropriate date for the date of construction or building permit date. If improvements have been made, see Substantial Improvement Exception instructions that follow.

In the Emergency Program, list the month/day/year of construction. If this information is not known or if only part of it is known, such as the construction year, the best available estimate should be listed. If the building was built or substantially improved on or before December 31, 1974, or before the effective date of the initial FIRM for the community, the building is considered to be Pre-FIRM construction. Otherwise, it is Post-FIRM.

If considerable improvements were made in the building, enter the actual month, day, and year that they were started or the date of the building permits.

If the policy is for a manufactured or mobile home or a travel trailer located outside a manufactured park or subdivision, enter the date of permanent placement of the home. See the Rate section for rules for manufactured and mobile homes located in manufactured or mobile home parks.

Elevation information must be completed in the second part of the application. Compare the date of construction or substantial improvement with the effective date of the initial FIRM to determine if the building was constructed Pre- or Post- the effective date of the initial FIRM. Check YES if the building is Post-FIRM construction or substantial improvement; otherwise check NO.

Provide the building diagram number and lowest adjacent grade from the Elevation Certificate. The lowest adjacent grade is not required for buildings without estimated BFE located in AO and unnumbered A and V zones. Policies rated using the Flood-proofing Certificate do not require either the lowest adjacent grade or the diagram number. The elevation certification date is required for all new business applications.

When making a rating correction concerning a substantial improvement for new applications, renewal applications and endorsements to a Pre-FIRM building the producer should complete the Construction Data section of the application. The improvement in this case would be an addition to the building that meets the conditions of Pre-FIRM construction (found on pages RATE 15-16 of the manual).

Check the box relating to Contents that describes the location of the contents to be insured. Describe any contents that are not personal property household contents. If only building insurance is being purchased notify the applicant of the availability of contents insurance and note that this information has been provided in the agent’s files (as protection against E&O claims). It is recommended that the applicant initial the contents coverage section if no contents insurance is requested. This is additional protection for the agent from E&O claims and it makes the applicant aware that he or she could have purchased such coverage.

In the Coverage and Rating portion of the application the rate is calculated and the premium quoted. If the building is Post-FIRM construction in Zones A, A1-A30, AE, AO, AH, AR, AR Dual, V, V1-V30, VE, or if Pre-FIRM construction is elevation-rated, complete the top section and submit the Elevation Certificate with the application. The certificate is optional for buildings in Zones A and AO without BFEs.

As we know, many communities have been awarded Community Rating System points for mitigation and flood awareness activities above the minimum requirements to participate in the NFIP. Policyholders within these areas receive a premium discount. If the client’s property is located in a CRS community, the applicable discount should be taken from the Total Prepaid Premium.

It is always important to remember that agents may not bind flood insurance as they can other products. Binding authority is totally and completely with the NFIP, not the agent. Policies can be written for a term of one year.

While there could be changes at some future time, currently the application looks like this:

Agent’s Premium Calculation Pad

Insured Name:

Property Address & Location:

County or Community Status: r Emergency r Regular

County or Community ID, Suffix & Map Panel:

For Regular

Program Only

Firm Effective Date:

FIRM Zone

Building Construction Date: ___________

Pre- or Post-FIRM: __________________

Number of Floors: __________________

Basement Information

Basement r No r Yes

If Yes: r Finished r Unfinished

Contents Location in Building

Building Information

r Basement Only

r First Floor

r Second Floor &

Above

r Basement &

Above

r First Floor &

Above

r Single Family

r Other Residential

r Condominium

___ High Rise

___ Low-Rise

r 2-4 Family

r Nonresidential

r Small Business

rAll Other

Lowest Floor Elevation:

_____

Base Flood Elevation

(Depth – AO Zone)

_____

Elevation Difference

+ or –

_____

Flood Proofed

r Yes r No

Building Value $_____

Contents Value $_____

Building Coverage Desired $_____

Contents Coverage Desired $_____

BUILDING

(A) Basic Amount

(B) Additional Amount

COVERAGE

$_______

RATE

_______

PREMIUM

$_______

Total Building Coverage:

$_______

Building Premium Subtotal

$_______

Building Deductible ____ Discount ____ %

Less Discount Amount

$_______

Total Building Premium

$_______

CONTENTS

(A) Basic Amount

(B) Additional Amount

COVERAGE

$_______

RATE

_______

PREMIUM

$_______

Total Contents Coverage

$_______

Contents Premium Subtotal

$_______

Contents Deductible ____ Discount ____ %

Less Discount Amount

$_______

Total Contents Premium

$_______

Date of Calculation _____/_____/_____

By: _____________________________

Annual Subtotal

ICC Premium

CRS Premium Discount ___

Subtotal

3 Year Subtotal

Probation Surcharge

Expense Constant

Federal Policy Fee

Total Prepaid Amount

____

+____

$____

054 (11/97)

Please attach to application form

Special Flood Hazard Area Defined

Land areas that are at high risk for flooding are called Special Flood Hazard Areas (SFHA), or floodplains. These areas are indicated on Flood Insurance Rate Maps, called FIRMs. During a 30-year mortgage, a building has a 26 percent chance of experiencing a flood in these designated areas.

Base Flood Elevation (BFE)

We have talked about Base Flood Elevations (BFE); they are the expected water surface elevation of floodwaters during a Base Flood. These elevation measurements are typically stated in feet using the National Geodetic Vertical Datum of 1929 (NGVD). The Base Flood Elevation is shown within wavy lines. In some SFHA zones the BFE might be shown within parentheses on the flood map below its corresponding flood zone. Therefore, a listing of a zone as VE (6) would indicate that the BFE is 6 feet. That means the expected floodwater elevation would be 6 feet above mean sea level. This information is published in a Flood Insurance Study (FIS) of the community.

The Base Flood Elevation has more importance than one might imagine. It affects flood insurance rates and it affects mitigation. BFEs play an important role in any flood insurance policy. In order for a community to meet FEMA’s floodplain management requirements, it must insure that substantially improved and newly constructed structures meet BFE requirements. This means a building’s lowest floor must be elevated (or flood proofed if it is a commercial building) to meet the minimum BFE indicated on the map. Obviously, it could exceed the BFE requirements, but it could not be less than required. In the case of VE (6), the lowest floor would have to meet the requirements of 6 feet above mean sea level.

Zone Determination

SFHAs are subdivided into flood hazard zones:

· Zones A, A1-A30, and AE are subject to inundation by a Base Flood. Base Flood Elevations (BFE) are shown for Zones A1-A30 and AE. BFE’s are not determined in unnumbered A Zones.

· Zones V, V1-V30, and VE are areas that can be inundated by tidal floods with velocity hazard (coastal high hazard areas). BFEs are shown for Zones V1-30 and VE.

· Zones AH are those that are subject to inundation by shallow flooding, unusually involving areas that have ponds where the average depths are between 1 and 3 feet. Base Flood Elevations are provided.

· Zones AO are areas subject to inundation by shallow flooding, usually sheet flow on sloping terrain where depths are between 1 and 3 feet. BFE’s are not provided.

· Zones A99 are areas to be protected by a flood protection system, such as dikes, dams, or levees, that are under construction where enough progress has been made to consider them complete for insurance rating purposes.

· Zones AR are SFHAs that result from the de-certification of a previously accredited flood protection system that is determined to be in the process of being restored to provide Base Flood protection.

Policies and Products Available

Section III

Individuals desiring flood insurance can discuss it with their local agent. There are variables that agents will need to cover so their clients can purchase the type of coverage that best fits their needs. An agent may need to request information from the client’s mortgage lender, such as verification of construction dates, or the property’s flood zone. Some lenders may recommend (or even require) flood insurance coverage and specify allowable deductible amounts. A client who is purchasing a home may be advised by their realtor regarding the original construction date, occupancy type, and number of floors or levels of the home.

Agents may need to obtain an Elevation Certificate, especially if the property is located in high-risk flood areas. An Elevation Certificate can be obtained from the previous homeowner, a community official, or a certified engineer or surveyor. A copy of what the certificate looks like can be obtained by going online to the NFIP website. Community officials can provide information on whether or not the agent’s client qualifies for a discount based on the community’s CRS rating and may also provide flood zone information.

While flood insurance covers losses to property caused by flooding, it is possible to purchase separate coverage that insures contents within policy limits. These policies would cover such things as clothing, furniture, and other household items.

The National Flood Insurance Program offers three Standard Insurance Policy Forms. The policy type is based on how a building is occupied. They include the Dwelling Form, the General Property Form, and the Residential Condominium Building Association Policy Form (RCBAP).

Dwelling Policy – Types of Buildings Covered

The Dwelling Form insures residential structures and/or contents and individual residential condominium units. Residential insurance for one to four family unit buildings and individual residential condominium units are written under the Dwelling Form. These are typically eligible for up to $250,000 in building coverage and up to $100,000 on personal property coverage. While there are variances, on average the cost of a $100,000 flood insurance policy on a home is around $400 per year.

General Property Policy – Types of Buildings Covered

Residential buildings containing more than four units are written under the General Property Form. The General Property Form insures these residential buildings as well as non-residential buildings such as schools, churches and businesses. They are eligible for up to $250,000 in building coverage and up to $100,000 on personal property. Residential insurance can be purchased for only the building, only the contents, or a combination of both.

Nonresidential insurance for schools, churches and commercial structures are written under the General Property Form and are eligible for building coverage up to $500,000. Personal property may also be insured for up to $500,000. Like insurance for residential properties coverage may be bought for only the building, only the contents or a combination of both.

Residential Condominium Building Association Policy –

Types of Buildings Covered

The Residential Condominium Building Association Policy form (RECBAP) insures associations under the condominium form of ownership. They are eligible for building coverage, which includes all units within the building, including improvements, for up to $250,000 multiplied by the number of units within the residential building. Therefore, if this type of structure has 10 units, coverage could be as high as $2,500,000 for all the units combined within the building ($250,000 X 10). Personal property coverage is limited to $100,000 per building.

Preferred Risk Policy – Types of Buildings Covered

The National Flood Insurance Program (NFIP) offers a special policy program for those who live outside of the Special Flood Hazard Areas called the Preferred Risk Policy. It is a lower-cost option for building and contents coverage on properties located in a low- to moderate-risk area. This type of coverage is available for both residential and non-residential properties. It gives the same coverage as the Dwelling Policy & General Property forms but is less expensive to buy. This policy is very easy to rate and write.

Regardless of which policy an individual purchases, there is a standard 30-day waiting period from date of purchase before a new flood policy goes into effect. However, there is no waiting period if the lender requires flood insurance in connection with the structure’s loan.

Definitions:

Basement/Enclosure: Any area of the building, including any sunken room or sunken portion of a room, having its floor below ground level (subgrade) on all sides.

Enclosure is further defined as that portion of an elevated building below the lowest elevated floor that is either partially or fully enclosed by rigid walls.

Elevated Building: A building that has no basement and has its lowest elevated floor raised above the ground level by foundation walls, shear walls, posts, piers, pilings, or columns. Solid foundation perimeter walls are not an acceptable means of elevating buildings in V and VE zones.

Flood: A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is the policyholder’s property) from one of the following:

· Overflow of inland or tidal waters.

· Unusual and rapid accumulation or runoff of surface waters from any source.

· Mudflow.

· 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 above.

The word “inundation” is not specifically defined in flood policies, so the commonly accepted meaning is “to cover with water.” Therefore, floodwaters must cover something and must consist of surface floodwater.

Damages Not Covered

There are damages that would not be covered even though the general condition of flooding exists. A flood policy would not cover theft, fire, windstorm and wind, explosion, earthquake, or gradual erosion or any other earth movement, except as covered specifically by the flood policy.

Single Peril Policy

Flood insurance is a single peril policy since only flooding is insured against. Other losses, such as living expenses, loss of income, or other types of losses are not covered by a flood policy. The NFIP does not offer blanket coverage. A separate policy must be issued for each building, except where applicable to the scheduled policy.

For Write Your Own (WYO) policies the WYO company issuing the contract is the insurer; the Federal government backs them. These are single peril policies covering only flood.

Mudslides Versus Mudflows

The FIA has interpreted the word “mudslide” to mean “mudflow.” This means that coverage is provided in such an event only where there is actually a river, or flow, of liquid mud down a hillside, usually as a result of some dual condition of loss of brush cover and subsequent heavy rains. For example, a hillside is logged and generally cleared of the plant life that normally holds the hillside in place. When heavy rains follow, a mudslide may be the result.

Mudslide occurrences are generally unforeseeable. They are less common than earth movement from landslide or erosion, and generally have characteristics markedly similar to those of a flood.

The FIA has interpreted the word “mudslide” to mean “mudflow.”

Property Covered

The National Flood Insurance Program has limited coverage for basements, appurtenant structures, and decks. Post FIRM rated elevated buildings in SFHAs have coverage limitations in building enclosures lower than the elevated floor.

Basements

As it relates to floods and flood insurance, a basement is defined as an area of a building, including a sunken room or sunken portion of a room, having its floor sub-grade on all sides. Because basements are much more susceptible to flooding than higher areas of a building there is a corresponding higher claim cost. Therefore, the NFIP found it necessary to limit coverage for basements and their contents. It is important to realize that coverage is still in place for building elements and equipment that insures the habitability of the building. The limitation did not remove indemnification to put the building back in service in a safe and sanitary condition.

The typical consumer would not think of a sunken room in their home as a basement. However, they are put in the same category as a basement by the NFIP since there are some similarities in claims experience. Therefore, the agent must be aware enough of the client’s home in order to correctly rate the structure. The homeowner may describe his or her home as a one level ranch style without a basement even though they have a sunken living room. After a flood, the adjuster may find a sunken room that is 4 inches below grade on all sides, which means (under the terms of the policy) the room is considered to be a basement with the coverage limitations of a basement.

No agent wants a policyholder to feel he or she has been misled on the terms of his or her coverage. Sunken rooms often cause such feelings when claims occur. Basements cause much confusion in general. In certain parts of the country it can be difficult to determine the difference between what is customarily called a basement in that area and a basement according to the National Flood Insurance Program.

Policies do not specify requirements for basement depth. When it comes to basement coverage, adjusters are advised that an item not listed on the policy’s list of “Property Covered” is NOT covered. Therefore, the homeowner who said they had no basement could find their sunken living room unprotected from a flood. This would include the flooring, contents, and even such things as wallpaper damage.

The NFIP would pay for the installation of unfinished drywall for sub-grade areas that were finished. FIA has determined that unfinished means not taped or floated. The NFIP will not pay for the taping or floating of drywall or any finished surface over the sheetrock, such as paint, wallpaper, or paneling.

There is no contents coverage for items in a basement. The only exceptions to this rule are air conditioning units, portable or window type, clothes washers and dryers, and food freezers, other than walk-in, and food in any freezer. As it relates to insurance, a food freezer is either an upright box, or a commercial walk-in freezer, not a refrigerator with a freezer or a side-by-side appliance. For these items to qualify for insurance coverage, the insured must have purchased both building and contents coverage.

Agents must be very diligent in making sure their clients understand what is considered a basement in their flood policy. It is also important that they are aware the need to maintain building and contents protection in order for these items to be covered.

Appurtenant Structures

An appurtenant structure typically refers to a garage, but it could be other structures as well. By FIA interpretation, under the Dwelling Policy form only, a detached garage at ground level is covered with respect to damages to the building itself. FIA has decided that this coverage applies by operation of the extension of coverage for appurtenant private structures under the building coverage provisions.

Coverage is limited to no more than 10 percent of the limit of liability on the dwelling. Use of this option reduces the building limit of liability. No coverage is provided for any detached garage used or held for use for residential, business, or farming purposes. In other words, a garage is not covered if someone is living in it or using it for a business office or manufacturing endeavor. Of course, the Standard Flood Insurance Policy is subject to change. It is always important to refer to the most current Standard Flood Insurance Policy Form for exact details.

Loss Avoidance Measures

FEMA has published an in-depth Guide to Citizen Preparedness called Are You Ready? (IS-22). This is a comprehensive guide on individual, family, and community preparedness, which was revised, updated, and enhanced in August 2004.

Are You Ready? provides a step-by-step approach to disaster preparedness by walking the reader through the process of finding local emergency plans, hazard identification for their local area and how to develop and maintain an emergency communications plan and disaster supplies kit. The guide provides information on specified hazards, what to do before, during, and after each type of hazard including floods, tornadoes, hurricanes, and other natural disasters.

During a flood it is important to listen to radio or television information. Be aware that flash flooding can occur even in areas that do not normally experience them. If there is danger of flash flooding, individuals should move to higher ground as soon as possible; do not wait for instructions to move.

If it becomes necessary to evacuate individuals should secure their homes. If there is time, bring in outdoor furniture and move essential items to an upper floor. Turn off utilities at the main switches or valves if instructed to do so. Disconnect electrical appliances. Do not touch electrical equipment if standing in water or wearing wet clothing or shoes.

Avoid walking in moving water if at all possible since even just six inches of surface water can make you fall. If it is necessary to walk in water, walk where there is little movement. Use a stick to check the firmness of the ground. Do not drive into flooded areas. Floodwaters may rise trapping the vehicle. If a vehicle is caught in floodwaters, abandon the car and move to higher ground as soon as safely possible. Vehicles are often swept away and it is important not to be in it if that should happen.

It only takes six inches of water under a car to cause loss of control and possible stalling. A foot of water will float many vehicles. Two feet of rushing water can carry away most vehicles including sport utility vehicles and even pick-up trucks.

Property owners can minimize losses by avoiding building in a floodplain unless the building is elevated and reinforced. Such things as the furnace, water heater and electrical panel can also be elevated. “Check valves” can be installed in sewer traps to prevent floodwaters from backing up into the drains of the building. Construct barriers, such as levees, beams, and floodwalls to stop floodwaters from entering structures. Seal the walls in basements with waterproofing compounds to limit water seepage.

Of course, the smartest thing an individual can do is purchase flood insurance.

For additional information go to www.fema.gov/areyouready/index.shtm.

Debris Removal

The SFIP will only provide coverage for eligible structures in participating communities for debris removal. Under these provisions, coverage is extended to removal of debris directly caused by a flood, which would include non-owned debris washed on or in the insured property and owned debris located anywhere.

Within the limits of the coverage, expenses incurred for debris removal include the value of the insured’s labor and the labor of members of the insured’s household at prevailing Federal minimum wage rates. This coverage does not increase the building or contents limits of the policy.

Improvements and Betterments

For new flood applications, renewal applications, and endorsements when making a rating correction concerning a substantial improvement to a Pro-FIRM building where the improvement is an addition that meets the conditions of Pre-FIRM construction, the producer should complete the Construction Data Section of the Application.

1. Enter the date of the construction for the Pre-FIRM part of the building; not the date of the building addition. This is the construction date that will be listed on the Declarations Page.

2. Do not respond to the question “Is building Post-FIRM construction?” Instead complete the top part of the Section: “Substantial improvements but continues to be Pre-FIRM.”

3. Supply the elevation data for “Addition.”

4. Complete the remainder of both parts in the usual manner. If the policyowner elects to use the normal Post-FIRM rating for substantial improvement, the agent must complete the second part of the Application.

Property Not Covered

Flood insurance policies are designed to cover the losses attributed to floods. All three policy forms exclude certain items. These include, but are not limited to:

· Fences, retaining walls, sea walls, bulkheads, wharves, piers, bridges, and docks.

· 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.

· Containers and related equipment, such as tanks containing gases or liquids.

· Property excluded under the Coastal Barrier Resources Act.

· Buildings, and their contents, built in, on, or over water or seaward of mean high tide where the start of construction or substantial improvement began on or after October 1, 1982.

· Land values, lawns, trees, shrubs.

· Septic tanks, cesspools, wells.

· Property in the open.

· Walks, walkways, decks, driveways, patios, and other surfaces located outside the perimeter, exterior walls of an eligible building.

· Animals, livestock, birds, and fish.

· Self-propelled vehicles or machines, including their parts and equipment. However, the policy does provide coverage for self-propelled vehicles or machines not licensed for use on public roads that are used mainly to service the described location or designed and used to assist handicapped individuals. At the time of loss, the vehicles or machines must be located inside a building at the described location.

· Recreational vehicles other than travel trailers described in the policy, whether affixed to a permanent foundation or on wheels.

· Aircraft and watercraft, including their furnishings and equipment.

· 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.

· There is a $2,500 limit for any one loss to one or more of the following kinds of personal property:

§ Artwork, photographs, collectibles or memorabilia, including but not limited to porcelain other figures, and sports cards;

§ Rare books or autographed items;

§ Jewelry, watches, precious and semiprecious stones, or articles of gold, silver, or platinum;

§ Furs or any article containing fur which represents its principal value;

§ Personal property used in any business.

There is no coverage under any of the policies for other perils, a loss in progress, business interruption, or additional living expenses.

No other perils are covered under a flood policy.

Increased Cost of Compliance Coverage (ICC)

This is a mandatory coverage that affects the premium of each policy. The Flood Insurance Manual contains the ICC rate chart. Premiums will vary depending upon the flood zone and whether the property was built before or after FIRM (Pre or Post-FIRM). The deductible discount will not apply to ICC premium.

ICC coverage does not apply to the Emergency Program, individually owned condominium units insured under the Dwelling Form or General Property Form, contents-only policies, and Group Flood Insurance Policies. Premium for ICC is not eligible for the deductible discount. The deductible discount is calculated, and then the ICC premium is added for each policy year. For scheduled building policies, apply the ICC premium for each building.

Standard Flood Insurance Policy Increased Cost of Compliance (ICC) Coverage

All Except RCAP, MPPP, Preferred Risk Policies, and Submit-For-Rate Policies.

Premiums for $20,000 ICC Coverage.

FIRM	Zone	Residential		Non-Residential
		Building Amount of Insurance		Building Amount of Insurance
		$1- $240,000.	$240,001- $250,000	$1- $490,000	$490,001- $500,000
Post-FIRM	A, AE, A1-A30, AO, AH	$ 6	$ 4	$ 6	$ 4
	AR, AR DUAL Zones	$ 6	$ 4	$ 6	$ 4
	Post-’81 V1-V30, VE	$20	$14	$20	$14
	75-81 V1-V30, VE	$35	$25	$35	$25
	A99, B, C, X, D	$ 6	$ 4	$ 6	$ 4
Pre-FIRM	A, AE, A1-A30, AO, AH	$75	$60	$75	$60
	AR, AR Dual Zones	$ 6	$ 4	$ 6	$ 4
	V, VE, V1-V30	$75	$60	$75	$60
	A99, B, C, X, D	$ 6	$ 4	$ 6	$ 4

Add Expense Constant, Federal Policy Fee, and Probation Surcharge if applicable, when computing the premium. Elevation-rated Pre-FIRM buildings should use Post-FIRM ICC premiums.

The Federal Policy Fee is $30, except for the Preferred Risk Policy, which is $11. The Probation Surcharge is $50.

General Rules

Section IV

Before an agent can begin rating flood insurance, he or she must ascertain the coverage amounts desired by the insured. Separate building and contents limits are needed. The National Flood Insurance Program enforces maximum policy limits.

Blanket coverage is a single amount of insurance applying to more than one building and/or contents. Blanket insurance is not permitted under the NFIP; there can be only one building per policy.

Statutory Coverage Limits

There are maximum amounts of insurance allowed under the NFIP. There are differences between the amounts allowed under the Emergency Program and those available under the Regular Program.

Building Coverage	Emergency Program	Regular Program
Building Coverage	Emergency Program	Basic Insurance Limits	Additional Insurance Limits	Total Insurance Limits
Single Family Dwelling	$ 35,000	$ 50,000	$200,000	$250,000
2-4 Family Dwelling	$ 35,000	$200,000	$200,000	$250,000
Other Residential	$100,000	$150,000	$100,000	$250,000
Non-Residential	$100,000	$150,000	$350,000	$500,000
Contents Coverage
Residential	$ 10,000	$ 20,000	$ 80,000	$100,000
Non-Residential	$100,000	$130,000	$370,000	$500,000

In Alaska, Guam, Hawaii, and the U.S. Virgin Islands, the amount available under the Emergency Program is $50,000 for Single Family Dwellings and 2-4 family dwellings. The amount available under Other Residential and Non-Residential is limited to $150,000. The total amount of available coverage is apportioned using basic and additional amounts. These coverage amounts correspond to the rate structure on the rate tables.

Deductibles

The National Flood Insurance Program (NFIP) offers two standard deductibles plus optional deductibles. The deductible is applied individually to each building and contents coverage. Article 7 of the Standard Flood Insurance Policy identifies the deductible provisions.

The deductible for each loss event is $1,000 for flood insurance policies issued or renewed on properties located in communities that participate in the Emergency Program. This deductible also applies to policies issued or renewed under the Regular Program on properties located in Zones A, AO, AH, A1-30, AE, AR, VO, V1-V30, VE, or V, where Pre-FIRM rates are used to compute the premium. For policies not included in the previous list, the deductible for each loss event is $500.

The insured may choose a deductible amount different from the standard $500 or $1,000 figure. The optional deductible amount may be applied to policies insuring properties in either the Emergency Program or the Regular Program. The premium rate or discount applied to the optional deductible combinations is available in deductible tables. For the Residential Condominium Building Association Policy optional deductibles agents should refer to the CONDO Section of the Flood Insurance Manual.

Single Family and 2-4 Family Building and Contents Policies
Deductible Options: Building/Contents	Post FIRM $500 Ded.	Pre-FIRM $1,000 Ded.	Deductible Options: Building/Contents	Post-FIRM $500 Ded.	Pre-FIRM $1,000 Ded.
$ 500 / $ 500	1.000	1.100	$4,000 / $1,000	.800	.850
$1,000 / $ 500	.975	1.050	$4,000 / $2,000	.775	.825
$1,000 / $1,000	.950	1.000	$4,000 / $3,000	.750	.800
$2,000 / $ 500	.925	1.000	$4,000 / $4,000	.740	.775
$2,000 / $1,000	.900	.950	$5,000 / $ 500	.780	.875
$2,000 / $2,000	.875	.925	$5,000 / $1,000	.750	.825
$3,000 / $ 500	.875	.950	$5,000 / $2,000	.740	.800
$3,000 / $1,000	.850	.900	$5,000 / $3,000	.730	.775
$3,000 / $2,000	.825	.875	$5,000 / $4,000	.720	.750
$3,000 / $3,000	.800	.850	$5,000 / $5,000	.710	.725
$4,000 / $ 500	.825	.900

Single Family and 2-4 Family Building Only or Contents Only Policies
Building	Post-FIRM $500 Ded.	Pre-FIRM $1,000 Ded.	Contents	Post-FIRM $500 Ded.	Pre-FIRM $1,000 Ded.
$500	1.000	1.100	$500	1.000	1.150
$1,000	.950	1.000	$1,000	.950	1.000
$2,000	.890	.925	$2,000	.850	.900
$3,000	.830	.875	$3,000	.750	.800
$4,000	.775	.825	$4,000	.675	.725
$5,000	.725	.775	$5,000	.625	.650

Other Residential and Non-Residential Policies
Bldg/Contents	Discount From			Building Only		Contents Only
Bldg/Contents	Post-FIRM $500 Ded	Pre-FIRM $1,000 Ded	Amount	Post-FIRM $500 Ded	Pre-FIRM $1,000 Ded.	Post-FIRM $500 Ded	Pre-FIRM $1,000 Ded
$500 / $500	1.000	1.050	$ 500	1.000	1.050	1.000	1.050
$1,000/$1,000	.975	1.000	$1,000	.975	1.000	.980	1.000
$2,000/$2,000	.930	.955	$2,000	.925	.950	.950	.960
$3,000/$3,000	.885	.910.	$3,000	.890	.910	.900	.930
$4,000/$4,000	.860	.885	$4,000	.850	.880	.850	.900
$5,000/$5,000	.835	.860	$5,000	.810	.850	.800	.875

The ICC premium is not eligible for the deductible discount. First calculate the deductible discount, and then add in the ICC premium for each policy year.

Changes may be made in the deductible amounts, as previously stated. The deductible amount may be increased during the policy term by submitting a completed General Change Endorsement form. It is not possible to reduce deductibles during a policy term unless the mortgagee requires this and the lender provides written authorization. A 30-day waiting period would apply to a deductible reduction. Upon renewal, a renewal application can be submitted indicating the lower deductibles that are desired or required.

Property Value Determination for Selecting Coverage Amounts

Once a community adopts floodplain ordinances, it qualifies for admission into the National Flood Insurance Program (NFIP). The regular phase of the Program allows for increased amounts of insurance coverage.

Before rating can begin, the agent must determine the coverage amounts desired by the insured. This should, at least in part, depend upon the property value determination. It is best to avoid both under-insuring and over-insuring. Flood insurance covers the losses to property caused by flooding, from structural and mechanical damage to flood debris cleanup. Separate coverage is available to insure personal property and belongs up to specified limits.

Loss Settlement

Actual Cash Value (ACV)

Actual Cash Value means the cost to replace an insured item at the time of loss, less the value of its physical depreciation. There is a big difference between replacement cost of an item and the actual cash value of the same item. It may cost $500 to buy a new camera, for example, while the actual value of the damaged camera may be only $200. Under an Actual Cash Value policy, the policyowner would only receive compensation based on the $200 – not the $500 it would take to purchase a replacement camera.

Building losses are settled on the Actual Cash Value basis under the SFIP, except for two situations:

(1) The Dwelling Policy “Building” coverage settlement on a Replacement Cost basis is applicable to a single family dwelling that is the principal residence, which means that, at the time of loss, the insured or spouse lived there for at least 80 percent of the year prior. If the owner has not lived in the home for a full year, they must have occupied it for at least 80 percent of the time they did own it.

And

At the time of loss, the amount of insurance on the building was 80 percent or more of its full replacement cost immediately before the loss, or is the maximum amount of insurance available under the NFIP. Contents coverage is always settled at ACV.

(2) The second exception to ACV settlement is that the Residential Condominium Building Association Policy (RCBAP) is settled at Replacement Cost basis regardless of amount of insurance. The RCBAP is the only NFIP policy that has a coinsurance provision. If (RCBAP) contents coverage is purchased it is settled on an ACV basis.

Replacement Cost Value (RCV)

Replacement Cost Value is the cost to replace property with the same kind of material and construction without deduction for depreciation. Replacement cost coverage provisions are found in the SFIP Dwelling Policy form and the RCBAP form. The RCBAP form contains a coinsurance provision. Both provisions contain insurance-to-value requirements for building coverage policy limits of at least 80 percent of the replacement cost, or the statutory limits of the National Flood Insurance Program, whichever is less.

The replacement cost provisions under the Dwelling Policy form apply to single-family dwellings that are the policyholder’s principal residence. The named insured or the named insured’s spouse must have lived in the dwelling for either the 365 days immediately preceding the loss or the period of ownership, if owned for less than 365 days in order to qualify. At the time of loss, the total amount of insurance must equal or exceed 80 percent of the full replacement cost of the building, or the maximum amount of insurance available under the NFIP.

When determining the full replacement cost of an insured building under the Dwelling policy form, exclude the costs for excavations; underground flues and pipes; underground wiring and drains; brick, stone, and concrete foundations; piers and other supports which are below the under surface of the lowest basement floor. Where there is no basement use the surface of the ground inside the foundation walls.

Co-insurance Penalty in RCBAP

RCBAP stands for Residential Condominium Building Association Policy. The RCBAP Form is issued to residential condominium associations on behalf of associations and the unit owners. In participating NFIP Regular Program communities only, provides building coverage and, if desired, coverage of commonly owned contents for residential condominium buildings with 75 percent or more of its total floor area in residential use. In the Regular Program, the final phase of a community’s participation in the NFIP, a Flood Rate Map is in effect and full limits of coverage available. In the Emergency Program, the initial phase of a community’s participation in the National Flood Insurance Program has limited amounts of insurance available.

Reduction and Reformation of Coverage

The agent will calculate how much premium is needed to purchase the amount of flood coverage desired. However, if the premium submitted is not sufficient to purchase the amounts of insurance requested, the policy will provide only the amount of insurance that could have been purchased for the entire term of the policy with the amount of money that was presented to the insurer.

Waiting Period/Effective Date of Policy

Many types of policies have waiting periods before coverage becomes effective. In flood insurance contracts, the effective date is determined by adding the appropriate waiting period to the date of policy application. The new policy will have an effective date of 12:01 a.m. local time on the 30^th calendar day after the application date and receipt of payment. Therefore, an application written and paid for on September 9^th will become effective at 12:01 a.m. local time on October 9^th. If the application month contains 31 days, rather than 30 days like September, the 30-day period will still apply. Therefore, a policy application taken on July 25^th would become effective on August 24^th since there are 31 days in the month of July.

There are two exceptions:

1. There is no waiting period for new policies written in conjunction with making, increasing, extending, or renewing a loan as long as the policy is applied for and payment is made prior to the loan closing.

2. There is a one-day waiting period when a new policy application and payment has been submitted during the 13-month period beginning on the effective date of a map revision. This rule only applies where the Flood Hazard Boundary Map or Flood Insurance Rate Map is revised to show the building to be in an SFHA, when it had not previously been.

The insurer will honor the effective date on the application as long as the application and premium payment arrive at the insurance company within 10 days of the date of application, or are mailed certified mail within 4 days from the date of application. If the application and premium payment are received later than 10 days from the application date or not mailed certified within that 4-day requirement, the insurer will calculate the waiting period from the date of receipt. Insurance producers are encouraged to use certified mail to ensure the earliest possible effective date. It is also an effective way keep records of when an application is mailed should proof later become necessary. Agents should use certified mail for all National Flood Insurance Program direct business. Binders are not permitted under the NFIP.

Binders are not permitted under the NFIP.

Policy Term

A flood policy term is for a period of one year. This is true of both NFIP Direct business policies and policies written through Write Your Own (WYO) Companies.

Cancellations

Policy cancellation is allowed for specific reasons listed in the manual. Unit Owner’s Dwelling Policies may be cancelled mid-term for the reasons stated in the Cancellation/Nullification section of the manual. To cancel building coverage while retaining contents coverage on a unit owner’s policy, submit a General Change Endorsement form.

The writing agent will retain the full commission on a unit owner’s policy when a cancellation occurs. The Federal Policy Fee and Probation Surcharge will be refunded on a pro rata basis, and the premium refund will be calculated on a pro rata basis.

Rating

Section V

Rating is necessary for all flood policies. The Flood Insurance Manual contains the current rate tables used. It is very important to use the most current rate tables available, which are provided by the NFIP. These tables will include:

· Emergency Program – Residential and non-residential building types.

· Regular Program/Pre-FIRM – All building types except residential condominium buildings.

· Regular Program/Post-FIRM – All building types except residential condominium buildings.

Under each category on the rate chart, two rates are printed that look similar to this: .51/.06

The first rate (.51) is applied to the basic amount of flood insurance. The second rate (.06) is applied to the additional amount of flood insurance.

Some of the tables reflect a series of stars (****), which indicates that an underwriter must calculate the premium, not the agent. These are referred to as “Submit for Rate” ratings. Consult the Flood Insurance Manual and contact your WYO company or the NFIP underwriter for assistance.

To complete a flood rating it is necessary to follow specific steps:

1. Determine the exact location of the building and its contents if they will also be insured. If the mailing address is different than the property address, use only the property address.

2. Determine if the building is located in an eligible community. Not all of them participate in the NFIP. There is no coverage available in nonparticipating communities. To determine this, you can call the NFIP insurer or consult a local official. The NFIP has an online Community Status Book at: http:/www.fema.gov/fema/csb.shtm.

3. Determine the NFIP program phase (Emergency or Regular) and the community in which the property is located. Some communities may be eligible for premium discounts under the Community Rating System (CRS).

4. Determine the location of the contents in the building.

5. Determine the date of construction. For flood insurance purposes, the date for buildings under the NFIP must be determined in order to establish whether the building is Pre-FIRM or Post-FIRM. For manufactured and mobile homes, the date of construction is different from a standard building and depends upon the location of the manufactured home.

All historic buildings are considered Pre-FIRM as long as the building meets the definition of a historic building.

The following is an example of a Regular Program Pre-FIRM construction annual rate table for rates per $100 of coverage.

FIRM Zones A, AE, A1-A30, AO, AH, D

Occupancy		Single Family		2-4 Family		Other Residential		Non-Residential
		Building	Contents	Building	Contents	Building	Contents	Building	Contents
Building Type	No Basement/Enclosure	.76 / .34	.96 / .60	.76 / .34		.76 / .70		.83 / .60
	With Basement	.81 / .50	.96 / .50	.81 / .50		.76 / .58		.88 / .58
	With Enclosure	.81 / .60	.96 / .60	.81 / .60		.81 / .74		.88 / .74
	Manufactured (Mobile) Home *	.76 / .34	.96 / .60					.83 / .60
Contents Location	Basement & Above				.96 / .50		.96 / .50		1.62/1.00
	Enclosure & Above				.96 / .60		.96 / .60		1.62/1.20
	Lowest Floor Only – Above Ground Level				.96 / .60		.96 / .60		1.62/ .51
	Lowest Floor Above Ground Level and Higher Floors				.96 / .41		.96 / .41		1.62/ .51
	Above Ground Level – More than One Full Floor				.35 / .12		.35 / .12		.24 / .12

	Manufactured (Mobile) Home *								1.62/ .51

* The definition of Manufactured or Mobile home includes travel trailers.

The preceding table is for construction or substantial improvement started on or before 12/31/74, or before the effective date of the initial Flood Insurance Rate Map (FIRM).

Types of Buildings

For purposes of the NFIP, distinctions have been made among the following building types:

· No basement

· Unfinished basement

· Finished basement

· Manufactured (mobile) home, including doublewide, or travel trailer, on a foundation

· Elevated buildings

To obtain a Scheduled Building Policy, an Application must be completed for each building and/or contents for which coverage is desired. For each scheduled building and contents coverage, the Federal Policy Fee is $30. All Flood Insurance Application forms must be completed in accordance with all Flood Insurance Manual rules and the Scheduled Building Policy qualifications. When completing multiple applications, the agent would identify the various structures by Building #1, Building #2, and so forth in the upper right corner of each application. These would be stapled together as a single unit and turned in for processing.

All building types are not necessarily eligible for flood insurance. An eligible building has two or more outside rigid walls with a fully secured roof. It must be affixed to a permanent site with at least 51 percent of actual cash value (ACV) above ground. It can be a manufactured home or travel trailer if it meets the previous criteria. It is important to note that it must be affixed to a permanent foundation that meets the community’s floodplain management and building ordinances and laws. A travel trailer must its wheels removed and be affixed to a permanent foundation that meets the community’s standards and laws.

An ineligible building would be one that is in violation of the floodplain management ordinances, new construction located in coastal barrier resource areas, buildings built over water, container-type buildings, or buildings that are partially underground.

Insurance may be written only on a structure that has two or more outside rigid walls affixed to a permanent site with a fully secured roof.

Many types of buildings may be covered by flood insurance. Silos, grain storage buildings and cisterns may be insured. Buildings entirely over water that were constructed or substantially improved prior to October 1, 1982 may be insured. In this case the agent would follow “submit for rate” instructions in the Rating section for insurance on Post-FIRM buildings located entirely in, on, or over water or seaward of mean high tide for these buildings. Pre-FIRM buildings constructed before October 1, 1982 are eligible for normal Pre-FIRM rates. If the start of building construction began on or after October 1, 1982 it is not insurable.

Buildings partially over water may also be insured under the “submit for rate” instructions in the Rating section. Pre-FIRM buildings are eligible for normal Pre-FIRM rates. This would include boathouses that are built partially over water. The non-boathouse parts of the building into which boats are floated are eligible for coverage if the building is partly over land as well as water and also used for residential, commercial, or municipal purposes. The area above the boathouse used for purposes unrelated to the boathouse, such as residential occupancy, is insurable from the floor joists to the roof, including walls. A common wall between the boathouse area and the other part of the building is also insurable. However, the following items would not be covered:

1. The ceiling and roof over the boathouse portions of the building into which boats are floated.

2. Floors, walkways, decking, and so forth, within the boathouse area or outside the area, but pertaining to the boathouse use.

3. Exterior walls and doors of the boathouse area not common to the rest of the building.

4. Interior walls and coverings within the boathouse area.

5. Contents located within the boathouse area, including furnishings and equipment, relating to the operation and storage of boats and other boathouse uses.

The Flood Insurance Application form, including photographs, must be submitted to the NFIP for premium determination (no premium would be included with the application). No coverage exists until the NFIP approves the insurance application, determines the rate, and receives the premium payment. Buildings in existence prior to October 1, 1982, may continue to be rated using the published rate.

It is also possible to insure buildings in the process of construction. This is true even if they are not yet walled and roofed, except when construction has been halted for more than 90 days and/or if the lowest floor used for rating purposes is below the BFE. Materials or supplies intended for use in construction, alteration, or repair are not insurable unless they are contained within an enclosed building on the premises or adjacent to the premises.

Elevated Buildings

There are two types of elevated buildings: those without obstructions and those with obstructions. In buildings without obstructions the area below the lowest elevated floor is open, with no obstruction, allowing the flow of floodwaters. Insect screening is permissible, as is wooden or plastic lattice, slats, or shutters are also permissible if at least 40 percent of their area is open. Lattice can be no thicker than ½ inch; slats or shutters can be no thicker than 1 inch. Any machinery or equipment below the lowest elevated floor must be at or above the base flood elevation (BFE).

Elevated buildings with obstructions have an area below the elevated floor that is enclosed, either partially or fully by solid perimeter foundation walls or breakaway walls. Equipment located below the lowest elevated floor is considered an obstruction.

For all non-elevated buildings, elevated buildings with non-breakaway walls below their lowest elevated floors, and elevated buildings with habitable or finished areas located below their lowest elevated floors, the submit-for-rate procedures should be followed. It is important to include a recent photograph or blueprints, including a site grading plan if ocean front, a copy of the variance, and an Elevation Certificate with the application for coverage.

Any additions during the policy term or any subsequent policy term that would change the applicable rates must be endorsed to the policy. Any additional premium must be paid by the insured.

Buildings With Basements

As we have discussed, the term “basement” means more than one might imagine when it comes to flood insurance. As it relates to the NFIP, a basement is the lowest level or story of a building that has its floor subgrade, meaning below ground level, on all sides. This would include all floor levels in a building that are subgrade on all sides. Using this definition, it would not necessarily mean that the entire room was subgrade; a sunken living room could qualify as a basement. A crawl space with its floor below grade on all sides would also be considered a basement.

When to Use an Elevation Certificate

An elevation certificate is required when rating a Post-FIRM structure located in a Special Flood Hazard Area (SFHA). Elevation Certificates are used to determine the relationship between the structure and the base flood elevation. Elevation Certificates are not required when using Pre-FIRM ratings. To obtain an Elevation Certificate the building owner would request it from a land surveyor, architect, or engineer. The Elevation Certificate provides the flood zone, BFE, and measurements relating to building and ground elevations. The insurance agent, to determine the lowest floor used for rating, refers to these measurements.

The elevation difference is the difference between the lowest floor used for rating and the Base Flood Elevation (BFE). The elevation difference must be determined if the building is Post-FIRM located in a Special Flood Hazard Area (SFHA) and within a Regular Program community. For rating purposes, the elevation difference is the difference, measured in feet, between the lowest floor elevation of the building to be rated, and the BFE for that zone.

Grandfathering

A community may make structural improvements, such as dams or levees, to reduce the potential effects of flooding. They may also experience new development aggravating the flooding situation that already exists, so that the floodplain is expanded. A community may revise geographical boundaries resulting in the designation of additional flood hazard areas or provide information to better delineate the BFE and/or flood insurance risk zones. When these situations occur, the FIRM is revised and republished.

To recognize policyholders who have built in compliance with the FIRM and/or remained loyal customers of the NFIP by maintaining continuous coverage, the Federal Emergency Management Agency has “grandfather rules” that allow such policyholders to benefit in the rating for the insured building. The insured would have the option of using the current rating criteria for that property or having the premium rate determined by using the BFE and/or flood zone on the FIRM old map in effect when the building was originally constructed for those built in compliance at that time or when coverage was first obtained for those with continuous coverage. This results in a cost savings to insureds when the new map resulting from a map revision would result in a higher premium rate.

Claims Handling Process

Section VI

Once a flood policy is effective the client will receive a copy of their policy, a copy of the Summary of Coverage, and a copy of their Declarations Page. In addition, he or she will receive a copy of the Claims Handbook, which provides important information regarding what to do when a flood occurs, the claims process, and their rights regarding the Appeals Process. There is also an Acknowledgement Form for the client to mail back to the National Flood Insurance Program. It is important to emphasize the need to sign the Acknowledgement Form and mail it back in the Postage Paid envelope that is provided.

Helping Your Client File a Claim

If your clients live in a community that has experienced a flood, he or she should call you immediately. Urge your clients to place their policy and your name and address in a location that is easily accessible. Having flood insurance is only the first step; the second step is being able to contact one’s agent when necessary to file a claim.

When your client has a flood claim, he or she should ideally be able to provide you with the company the policy was placed with, the policy number and a location that he or she may be reached at. Floods often displace people so they may not always have their policies with them. If they are not able to locate their policy, you will need to have their information on file so that you may access the information on their behalf.

What if the flood also affects your office? Agents who live or work where they themselves may experience flooding must be prepared by having important information stored in a safe location. Your clients rely upon you to help when a claim must be filed. This means having complete information available even when adverse circumstances exist. Your client will want to know when he or she may expect to have a claims adjuster visit so they can plan accordingly. Generally, an adjuster will contact your clients within 24 to 48 hours after the notification of flood loss. If you do not immediately have this information, you must be able to obtain it. The insurer may be able to advise you.

Adjusters work with policyholders to calculate the value of the damage and prepare their estimate. Agents should be able to advise their clients regarding what the adjuster will require. For example, the community may require some types of debris to be cleared as soon as possible, especially if they feel it presents a community danger. Advise your clients to keep sample swatches or pictures of items or debris that had to be cleared before his arrival. Photographs are always an important part of any damage or cleanup operation. Pictures of items prior to their damage help the adjuster make fair assessments. Some items may be gone entirely, swept away by floodwaters.

The adjuster should provide necessary claim forms. However, it is the policyholder’s responsibility to provide the insurer with a signed Proof of Loss form within 60-days of the date of loss. This sworn statement substantiates the insurance claim and is required before the National Flood Insurance Program or insurance company will make payment.

Your client must provide a detailed estimate to replace or repair the damaged property. This is typically obtained from the adjuster or estimator. During the initial visit to the client’s property, the adjuster will take measurements and photographs and make note of direct flood damage. This is called “scoping” a loss. While the adjuster is a professional and knows what to look for, your clients will still probably point out the damage they have noticed. Most adjusters realize this and will take note of anything your clients show him or her. Once the scope is finished, the adjuster will provide a local contact telephone number and tell your client whether additional visits are needed. Usually follow-up visits are only required when the damage is extensive.

The adjuster will now complete a detailed estimate of damages. Your client will receive a copy of this. This estimate should be used by your client to obtain bids for repair work from licensed contractors. It is often possible to obtain partial payment prior to the start of repair work. Any advance payment will be part of the total claim, not in addition to it. Flood policies do not pay for temporary living expenses or housing. Only direct physical damage from flooding will be covered.

It is important that your clients fully cooperate with their adjuster. The stress of the situation sometimes causes people to lose sight of the job others are doing on their behalf. If your clients feel their adjuster is not doing his or her job, urge them not to become combative with the adjuster.

The official claim for damages is called a Proof of Loss. As we stated, this must be fully completed and signed and in the hands of the insurer within 60 days following the loss. The Proof of Loss will include a detailed estimate to replace or repair the damaged property. The adjuster, as a courtesy, will provide your client with a suggested Proof of Loss, which insurers give great consideration. However, it is the client’s responsibility to make sure the form is complete, accurate, and filed promptly. Again, policyholders are urged to keep copies of all completed forms.

Following severe flooding, FEMA may authorize Proof of Loss extensions for everyone in the area. In such a case, the insurers will be notified, as will local news outlets.

The claim is payable after the policyholder and the insurer agree on the amount of damages. Typically, the insurer relies on the adjuster to determine the amount of damages and the estimated cost to repair or replace. The insurer must also receive the policyholder’s complete, accurate and signed Proof of Loss prior to making any payments. Remind your clients to keep copies of everything they submit to their insurer. Catastrophic flooding often means it will take longer to process claims and make payments since the sheer volume of submitted claims will slow down the process.

Any check for building property must include the policyholder’s mortgage company name, or the name of the individual holding the mortgage. A check for personal property is typically in the policyholder’s name only.

If the policyowner notices additional damage after filing the claim, he or she may file a Supplemental Claim. Like the original claim, a Supplemental Claim must be filed within 60 days of discovering the loss. Filing the claim would require repeat documentation and filing process for the original claim, including a Proof of Loss form, but only for the newly discovered damage. The adjuster, agent and any company representative should be notified of the Supplemental Claim. The adjuster would probably make another visit to document the additional damage and verify the loss.

Any claim settlement is determined by the amount of coverage that exists, as well as any deductibles in the policy. Once the final check has been received by the policyholder, the claim is considered to be closed.

Appeals Process

Policyholders do not always agree with the assessment of adjusters and insurers. The NFIP provides policyholders with an appeal process if he or she feels the decisions regarding the flood claim were unfair or incomplete. The process is designed to help a policyholder resolve the claim issues but it cannot provide more coverage than was actually purchased, even if the amount of coverage was inadequate.

There are four steps involved in appealing a flood claim:

Step 1:

Urge your client to talk with their adjuster. He or she has more knowledge about the claim than anyone, including the writing agent. If your client does not understand certain decisions regarding how the claim was paid, you may want to participate in the discussion, especially if you are able to explain the payment in terms your client understands (“Remember Bill how we talked about the amount of coverage you were purchasing? You thought this amount would be adequate at that time.”). Often the policyholder simply needs a fuller explanation of why claims were paid in a particular way.

Step 2:

If the policyholder, after a fuller explanation, is still not satisfied with the adjuster’s answers or if he or she disagrees with the decisions, your client may contact the adjuster’s supervisor. Adjusters do not have a financial stake in how claims are paid, so the supervisor will also have no personal stake in taking one side or another.

Step 3:

If the adjuster’s supervisor is unable to resolve the issues raised by your client, contact the insurance company’s claim representative. Ask the representative for assistance. It should be noted that the flood policy has a section on appeals (Section 7 of General Conditions, Paragraph R). The insurer representative will follow the policy language.

Step 4:

If all of this fails to satisfy the policyholder, he or she may contact the Federal Emergency Management Agency (FEMA). Write to:

Federal Emergency Management Agency

Mitigation Division, Room 433

Risk Insurance Branch

Attn: Director of Claims

500 C Street SW

Washington DC. 20472

The letter should be written by the named insured as it appears on the NFIP policy or by a legal representative, if preferred (such as an attorney). If a representative is used, he or she should clearly identify their relationship with the policyholder. If the representative is a relative, such as a son or daughter, they may be asked to provide authorization from the named insured, verifying the relationship.

Some specific items should be included in the letter:

1. The policy number, as shown on the NFIP Declarations page.

2. The policyholder’s name, as shown on the Named Insured line of the Declarations page.

3. The property address, as shown on the policy’s Declarations page. If the property location is different than the mailing address, this should be clearly stated.

4. A contact telephone number and address of the policyholder or the policyholder’s representative.

5. The details of the claim concern. This should be as complete as possible. If documentation is available, include it.

6. The dates of contact and contact details for all individuals that have been involved in the claim up to this point. It should clearly indicate that all other channels of resolution have been exhausted.

Enclose a detailed list of damaged property and the value of the individual items (do not lump the values together in a single figure). If photographs are available, copies of them should be included. Never send the original documentation items, especially if no other copies exist. If there is a contractor’s detailed estimate to repair damages, include this with the letter to FEMA. It may be possible to resolve issues by comparing a contractor and adjuster’s estimates to demonstrate the differences that exist.

Although we have said it before, urge your clients not to send originals of documents, including contractor’s estimates. Send photocopies and keep the originals in a safe place.

FEMA will review the claim. They will send their findings directly to the policyholder with a copy also going to the insurer. If the policyholder still disagrees with the finding, he or she may refer to their flood insurance policy under the General Conditions, R. Suit Against Us. Again, filing an appeal will not change the amount of flood coverage that was purchased, even if it proved to be inadequate.

A ruling by FEMA on the appeals process was issued on October 13, 2006. The final rule (RIN 1660-AA41) fulfills a key provision of the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 (P.L. 108-264).

FEMA had traditionally used an informal process to handle appeals. This now provides a clearer and easier process for policyholder appeals. FEMA will now acknowledge receipt of a policyholder’s appeal in writing and will advise him or her if additional information is necessary to fully consider the appeal. The provided documentation will be reviewed and FEMA will conduct any necessary investigation in addition to what was received by the policyholder if necessary. FEMA will advise the policyholder and the appropriate flood insurance carrier of their decision on the appeal.

FEMA will only become involved after other channels have been utilized. Once the final claim determination is issued, a policyholder may then appeal any action taken by the insurer, FEMA employee, FEMA contractor, insurance agent, or insurance adjuster. The appeal must be filed within 60 days of receiving the final claim determination. The appeals process does not preclude the policyholder’s right to enter into litigation, if they so choose.[4]

Claims Handbook

A Flood Insurance Claims Handbook, printed by FEMA, is provided with the flood policy. It is also available online or by contacting FEMA. This handbook provides information on what to do before a flood occurs, what to do after flood loss, filing claims, and the appeals process if the policyholder disagrees with the claim settlement.

Requirements of the

Flood Insurance Reform Act of 2004

Section VII

Flood Insurance Reform Act of 2004

On June 30, 2004 President Bush signed into law the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004. It initially extended the Act to 2008, but subsequent changes continued to extend the expiration date of the NFIP as needed since this is not a continuous Act. Section 207 of the Act, Training and Education Requirements for Insurance Agents, required FEMA (in cooperation with the insurance industry, State insurance regulators and other interested parties) to:

· Establish minimum training and education requirements for all insurance agents who sell flood insurance policies, and

· Publish these requirements in the Federal Register. Furthermore, they must inform insurance companies and their agents of the requirements.

The reform act provides authority for the NFIP to launch initiatives in two areas: mitigating repetitive loss properties and educating policyholders.

Mitigating Repetitive Loss Properties

Title I authorizes the NFIP to “provide financial assistance to States and communities that decide to participate in the pilot program . . . for taking actions with respect to severe repetitive loss properties . . . to mitigate flood damage to such properties and losses to the National Flood Insurance Fund from such properties.”[5]

Repetitive-loss properties comprise about 1 percent of currently insured properties. They are expected to account for 25 to 30 percent of claims losses.

According to the Congressional Findings, a strategy is needed to make mitigation offers aimed at high-priority repetitive-loss properties. Additionally, more of the burden of recovery costs should be shifted to property owners who choose to remain vulnerable to repetitive flood damage.[6]

Let’s look at some definitions:

For one- to four-family residences, Title I defines a “severe repetitive loss property” as any NFIP-insured property that meets either of two criteria for paid flood losses:

· Four or more separate claim payments, each greater than $5,000 and with a total greater than $20,000; or

· Two or more separate claim payments with a total greater than the value of the property.

In case of other residential properties, loss criteria for a “severe repetitive loss property” will be determined by the NFIP.

To support the pilot program, Title I includes provisions for:

· Eligible activities

· Fund matching requirements

· Identification of severe repetitive loss properties

· Notification of owners of buildings selected for the pilot program

· Standards for mitigation offers in general

· Standards for purchase offers

· Increased premiums in cases of refusal to mitigate

· Discretionary actions in cases of mitigation fraud

· Establishment of rules and procedures

· Funding

Title I also stipulate that individuals flood mitigation grants will be awarded for those properties that “will result in the greatest amount of savings to the National Flood Insurance Fund in the shortest period of time.”

Educating Policyholders

Title II of the reform act, Miscellaneous Provisions, contains measures to educate policyholders about the main coverages, limitations, and exclusions of the Standard Flood Insurance Policy (SFIP) and to familiarize consumers about claim procedures before they need to file them. Unfortunately, few consumers actually read the policies they buy so general education is expected to benefit everyone, from the policyholder to the insurance companies. If consumers have a basic understanding of how flood policies work it may eliminate some of the frustration that everyone feels following a flood when claims are filed.

The requirements of the Flood Insurance Reform Act of 2004, Title II, Miscellaneous Provisions state that no later than 6 months from the date of enactment the Director was required to develop supplemental forms to be issued in conjunction with the issuance of a flood insurance policy. These supplemental forms must be written in simple language allowing a person with no insurance background to understand them. They cover:

Ÿ The exact insurance coverage being purchased;

Ÿ Any exclusions from coverage that would affect the policyholder;

Ÿ An explanation, including illustrations, of how lost items and damages will be covered (valued) under the policy at the time of loss;

Ÿ The number and dollar value of claims filed under a flood insurance policy over the life of the property and the effect (under the National Flood Insurance Act of 1968) of the filing of any further claims under the flood insurance policy regarding that property; and

Ÿ Any other information that the Director determines would be helpful to policyholders in understanding their flood insurance coverage.

Any person owning a flood insurance policy would receive this information, whether it involves a policy already issued or a newly issued contract. Insurance company and agents involved in the selling or issuing of flood insurance contracts would also receive them.

Within 6 months of the passage of the Act, the Director had the responsibility of developing an acknowledgment form to be signed by the purchaser of the flood insurance policy. It contains an acknowledgment that the purchaser has received a copy of the standard flood insurance policy and any related forms. There would also be the acknowledgment that the purchaser has been told that the contents of the property or dwelling are not covered under the terms of the standard flood insurance policy, and that the policyholder has the option to purchase additional coverage for their contents.

Write Your Own Companies and the NFIP Work Together

In accordance with the policyholder education provisions of Title II, the NFIP is developing several new documents. These are referred to as the supplemental and acknowledgment letters, summary of coverage, and NFIP claims handbook. The intent is to keep all of these short and easy to read and understand.

Some of the information that is included in these letters and booklets include coverages purchased, coverage exclusions (what is not covered) and how damages will be valued if a claim is filed. This would include the differences between actual cash values and replacement cash values (these were previously discussed in this course).

The acknowledgment letter must be signed by the policyholder to indicate that he or she did receive the Standard Flood Insurance Policy (SFIP) and supplemental form. If the policyholder only purchased building coverage, the signature will also indicate that he or she has been offered contents coverage and declined its purchase.

The claims handbook will be given the policyholder along with their policy. This handbook provides basic policy information and procedures for filing claims and supplementary claims, proof of loss, and appeals.

These items do not eliminate an agent’s responsibility. He or she must still cover the policy that is purchased (ideally both at the point of purchase and again upon delivery). It is especially important that policyholders understand the definition of “flood.” Policyholders must also understand that the only peril covered is that of flood. They must further understand that contents are not covered unless that insurance is purchased.

Agents should urge their clients to completely read the information provided. We know few people read their policies because they believe they will not be able to understand them. The Claims Handbook is easy to read and understand. Agents in different parts of the country will have different types of floods. Those in the Pacific Northwest should explain the differences between mudflow and mudslide for example. Mudflows are covered by a flood policy, but mudslides are not; that is important to the policyholder.

Certainly, agents want to provide their business card with their names, telephone numbers and addresses on them. It is important that your clients be able to reach you in case of flood loss. The NFIP wants your client’s business; it’s good for you and it’s good for them.

Agents who plan to sell flood insurance should follow the current flood insurance training strategy developed by their Write-Your-Own (WYO) company, which is also called the NFIP Participating Company. This would be available from the insurers the agent will sell such policies for. A list of the NFIP Participating Companies is available online at https://www.fema.gov/WYO_company.

National Flood Insurance Reform Act of 1994

Congress enacted the National Flood Insurance Reform Act of 1994 (NFIRA) to strengthen the financial condition of the NFIP and to increase its policy base. This Act represented the first major overhaul of the program in more than twenty years.

NFIRA brought some changes to the National Flood Insurance Program, including:

1. The maximum coverage limits were increased.

2. The policy’s waiting period was increased to 30 days, with an exception that will be covered later on.

3. The Federal Policy Fee was increased.

4. Federal disaster assistance was eliminated in some cases where flood insurance was not purchased and maintained as required.

5. Increased Cost of Compliance (ICC) coverage was added.

6. The Flood Mitigation Assistance Program was created.

This legislation wanted to improve compliance with the mandatory purchase requirements of the NFIP by lenders, servicers, and secondary market purchasers. It requires Federal regulators and agency lenders to develop regulations to direct their federally regulated lenders not to make, increase, extend, or renew any loan with collateral located in a Special Flood Hazard Area unless flood insurance has been purchased.

Flood Disaster Protection Act of 1973

Prior to the passing of this Act, only property owners in high-risk flood areas, such as Florida or Louisiana were using the NFIP. Less than 3,000 communities were even participating. When Hurricane Agnes hit in 1972, severe flooding took place in Pennsylvania with damages estimated to be $1billion. The Federal Government was forced to carry the burden of these costs since less than 50 flood policies were in force.

The Flood Disaster Protection Act of 1973 gave stronger incentives for community NFIP participation by requiring the purchase of flood insurance under specified conditions. Federally regulated financial institutions were required to ensure the purchase and maintenance of flood insurance by borrowers for loans secured by structures located in Special Flood Hazard Areas (SFHA).

National Flood Insurance Act of 1968

This act was passed with the National Flood Insurance Program implemented on January 28, 1969. This gave property owners the ability to purchase flood insurance protection for structures and their contents from the Federal Government. The government was hoping to reduce the loss of life, property and rising taxpayers’ disaster relief costs as a result of floods.

While there were many benefits associated with this Act, one of the greatest has been public awareness of flooding exposure. It also provided an incentive for communities to adopt floodplain management ordinances that would alleviate the effects of flooding. Areas at high risk of flooding, known as Special Flood Hazard Areas (SFHA), were part of this program. Flood insurance was only made available to individuals or businesses whose insurable property was located in communities that adopted and enforced floodplain management regulations established by the Federal Emergency Management Agency (FEMA). Such community activities, to prevent future loss, are part of a concept known as mitigation. Through mitigation, floodplain managers attempt to eliminate or minimize future property dame from flooding.

2019 Summary of Changes

April 1, 2018 and January 1, 2019 Program Changes: A Summary

The changes outlined in this bulletin apply to new business and renewals that will become effective on or after April 1, 2018; the premium changes for Preferred Risk Policies (PRPs) and Newly Mapped procedure policies will become effective January 1, 2019. See Attachment B for updated rate tables effective April 1, 2018 and Attachment C for updated PRP premiums and Newly Mapped base premium and multiplier tables effective January 1, 2019. Attachment D provides revised Transaction Record Reporting and Processing (TRRP) Plan pages and updated Edit Specifications.

1. Premium Increases and Surcharges

Overall, premiums will increase from an estimated average of $866 per policy to $935, for an average increase of 8.0 percent. These amounts do not include the HFIAA surcharge or the Federal Policy Fee (FPF). When the HFIAA surcharge and FPF are included, the total amount billed the policyholder will increase from $994 to $1,062, for an average increase of 6.9 percent.

Premium increases effective April 1, 2018, comply with all the requirements of both the Biggert- Waters Flood Insurance Reform Act of 2012 (BW-12) and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). Those requirements are as follows:

1. Premium rates for four categories of Pre-FIRM subsidized policies, including non-primary residential properties, business properties, Severe Repetitive Loss (SRL) properties (which includes cumulatively damaged properties), and substantially damaged/substantially improved properties, must be increased 25 percent annually until they reach full-risk rates;

2. The average annual premium rate increases for all other risk classes are limited to 15 percent while the individual premium rate increase for any individual policy is simultaneously limited to 18 percent; and

3. The average annual premium rate increase for all other Pre-FIRM subsidized policies not covered by the first bullet above must be at least 5 percent. There are some limited exceptions to the 18 percent cap on premium rate increases for individual policyholders. These include policies on the properties listed above that are subject to 25 percent annual premium rate increases. These also include premium rate increases resulting from changes in the Community Rating System (CRS) class, mis-ratings, and increases in the amount of insurance purchased. The specific scenarios that constitute a mis-rating are described in the Flood Insurance Manual.

When premium rate increases are evaluated for compliance with these caps, the building and contents premium, the Increased Cost of Compliance (ICC) premium, and the Reserve Fund Assessment (RFA) are all included. The probation surcharge, FPF, and Congressionally mandated HFIAA surcharge are not considered premium and, therefore, are not subject to the premium rate cap limitations. As a result, the increase in the total amount charged a policyholder may exceed 18 percent in some cases.

For policies issued on or after April 1, 2018, there will be no changes to:

1. Deductible Factors;

2. Federal Policy Fee;

3. Reserve Fund Assessment;

4. HFIAA Surcharge;

5. Probation Surcharge; and

6. ICC Premiums.

Pre-FIRM Subsidized Policies

Regarding Pre-FIRM subsidized policies (a group of policies in SFHA Zones A, AO, AH, A1-30, AE, A99, AR, AR/A1-30, AR/AE, AR/AO, AR/AH, AR/A, V1-30, and VE, that receive rates insufficient to pay the anticipated losses and expenses for that group):

· Primary Residences: The combined premium increase for all primary residence policies in these zones is 5 percent, with a total increase of 5 percent.

· Other Pre-FIRM Subsidized Policies Not Subject to 25 Percent Annual Increases: These are primarily condominium policies and multifamily policies. Premiums will increase 5 percent, with a total increase of 5 percent.

· Non-Primary Residences: The combined premium increase for non-primary residence policies in these zones is 24 percent, with a total increase of 22 percent.

· Other Pre-FIRM Subsidized Policies Subject to 25 Percent Annual Increases as required by BW-12: Premiums will increase slightly less than 25 percent, primarily due to the impact of rounding. The overall increase for these categories is about 23 percent.

Other Subsidized Policies

A99 Zones (zones in which flood protection systems are still in the process of being constructed) and AR Zones: Premium changes for those AR and A99 zone policies that are not eligible to use PRP premiums will be effective April 1, 2018. Premiums for these policies will increase 2 percent, with a total increase of 1 percent. Premium increases for A99 and AR zone policies eligible for the PRP are described below.

V Zones (coastal high-velocity zones)

Rate increases are being implemented again this year as a result of the Heinz Center’s Erosion Zone Study, which clearly indicates that current rates significantly underestimate the increasing hazard from steadily eroding coastlines.

In Post-FIRM V Zones, premiums will increase 11 percent, with a total increase of 11 percent.

A Zones (non-velocity zones, which are primarily riverine zones)

· Post-FIRM A1-A30 and AE Zones: Premiums will increase 1 percent, with a total increase of 1 percent.

· AO, AH, AOB, and AHB Zones (shallow flooding zones): Premiums will remain unchanged.

· Unnumbered A Zones (remote A Zones where elevations have not been determined): Premiums will increase 3 percent, with a total increase of 2 percent.

X Zones (zones outside the Special Flood Hazard Area)

Standard-Rated Policies: Premiums will increase 2 percent, with a total increase of 1 percent.

Miscellaneous

· Group Flood Insurance Policies (GFIPs): No change.

· Tentative and Provisional Rates: No change.

· Mortgage Portfolio Protection Program (MPPP): No change.

Changes to Become Effective January 1, 2019

· Preferred Risk Policies (PRPs): Premiums will increase 8 percent, with a total increase of 6 percent.

· A99 and AR Zone Policies eligible for the PRP: Premiums will increase 8 percent, with a total increase of 6 percent.

· Properties Newly Mapped into the SFHA: Newly Mapped policies are initially charged PRP premiums during the first year following the effective date of the map change. Annual increases to these policies result from the use of a “multiplier” that varies by the year of the map change; this multiplier is applied to the base premium before adding the ICC premium. The RFA is added after the ICC premium, and this subtotal is the amount subject to the annual premium rate increase cap. The HFIAA surcharge, probation surcharge (if applicable), and the FPF will be added to the premium; they are not subject to the cap on annual premium rate increases. As a result of increases to the multiplier that will be effective January 1, 2019, premiums for Newly Mapped policies will increase 15 percent, with a total increase of 11 percent.

2. Policy Reformation for Use of Incorrect Standard Flood Insurance Policy Form

FEMA is updating Policy Reformation guidance for policies that were issued on an incorrect policy form (i.e., Dwelling, General Property, or RCBAP form). When insurers reform policies that were issued on an incorrect policy form, the maximum coverage amount on the reformed policies can be equal to the amount of coverage that was on the incorrect policy when it was discovered to be incorrect, subject to the coverage limits under the correct form. If additional premium is due, the insurer must send an underpayment notice for the additional premium. Insurers must receive the additional premium within 30 days of the underpayment notice prior to processing the policy at the restored coverage amount or prior to processing any claim. FEMA will allow the insurer to deduct the additional premium due from the claim settlement.

3. Premium Receipt Date Guidance for Invalid Payments

The NFIP Flood Insurance Manual provides guidance for determining a policy transaction effective date based on the date the transaction was applied for and the premium receipt date. FEMA considers a payment invalid if the financial institution determines there are Nonsufficient Funds (NSF) in the account, the payment is non-negotiable for any other reason, or a reversal (dispute) is successfully completed on an electronic payment. NFIP insurers cannot use the receipt date of the invalid payment as the premium receipt date to determine the effective date of a policy transaction (application, endorsement, or renewal).

Upon notification of the NSF/non-negotiable/reversal status of a premium payment, the insurer is to cancel/nullify the transaction associated with that payment back to the transaction’s effective date immediately. The insurer will send notification to the policyholder, agent, and lender(s), if applicable, of the cancellation/nullification of the transaction for invalid payment due to NSF/non-negotiable/reversal status. If the insurer receives a new payment, the insurer must process the transaction based on the premium receipt date of the new payment. The effective date of the transaction is subject to the effective date rules based on the new payment receipt date.

Note: A new application or endorsement request is not required for this transaction as long as the insurer still has the original request.

4. Primary Residence Determination

FEMA is updating the Primary Residence guidance to allow a policyholder and policyholder’s spouse to have more than one primary residence. This change will accommodate those situations in which each spouse may reside more than 50 percent of the year at a separate residence. The policyholder and policyholder’s spouse can each have one primary residence provided that they submit the required supporting documentation for each residence.

5. Clarification of Increased Cost of Compliance Premium for Other Residential Buildings

FEMA is restructuring the ICC premium table in the Rating Section of the Flood Insurance Manual to clarify the different building amount of insurance available to 1-4 family buildings and other residential buildings.

6. HFIAA Section 28, Clear Communication of Risk – Phase 2 Reunderwriting

In view of the resource constraints imposed by the extensive flooding resulting from recent hurricanes and flooding events, FEMA is allowing additional time for NFIP insurers to complete the reunderwriting required for HFIAA Section 28, Clear Communication of Risk - Phase 2. (See NFIP Bulletin W-16021 dated March 29, 2016.) Instead of reunderwriting Phase 2 policy renewals effective on or after October 1, 2017, for the full year of policy renewals, NFIP insurers can now reunderwrite Phase 2 policy renewals effective on or after April 1, 2018. The reunderwriting process for these policies must be completed by April 1, 2019 for the full year of policy renewals. FEMA will not send the clear communication Cost-of-Flood letter for these policies until after the system processing of April 2018 policy data reported through the Transaction Record Reporting and Processing Plan.

Note: For those Phase 2 policy renewals already reunderwritten under the current timeline, FEMA does not require insurers to reunderwrite them again at the next renewal.

7. Datum Conversion

FEMA is providing additional guidance for elevation datum conversions:

(1) The elevations used to calculate the elevation difference should always be the same datum.

(2) Since datum NAVD88 was not used to develop Flood Insurance Rate Maps (FIRMs) until June 1991, insurers can use the following guidelines for reunderwriting rating purposes:

a. For any documentation used to validate elevations dated prior to June 1991, assume that all elevations are NGVD29.

b. For elevation-rated policies where the rating community information references a FIRM dated prior to June 1, 1991, assume the elevations are NGVD29.

c. If unable to confirm that the datum of all the elevations on the elevation documentation are the same, assume the same datum was used for all elevations.

d. If the elevation documentation is not available on existing elevation-rated policies where the rating community information references a FIRM dated prior to June 1, 1991, assume the elevations are NGVD29.

e. For areas that have a datum other than NGVD29 or NAVD88, a community official, surveyor, or the Flood Insurance Study for the community are resources for datum conversions.

f. Since Hawaii and the U.S. Island Territories never used NGVD29 or NAVD88 in developing their FIRMs, properties located in these areas do not require datum conversion. The same datum (referred to Local Tidal Datum and Local Mean Sea Level) is used in Hawaii and the U.S. Island Territories. It should be noted that prior FIRMs issued in Hawaii have referenced the NGVD29 datum incorrectly.

g. Unnumbered A zones without an estimated Base Flood Elevation and AO zones do not require a datum conversion for rating purposes.

h. Unnumbered A zones with an estimated Base Flood Elevation require confirmation that the elevations are using the same datum.

For all the above items, if the current FIRM references a different datum, convert the elevations to the current datum.

8. Updated Claims Data Elements

The TRRP Plan includes updates to several Claims data elements, including adjustment of the field length to accommodate up to 10 characters for the assigned Adjuster Individual Flood Control Number.

This is the end of the program summary changes.

Agent Resources

Section VIII

Write Your Own (WYO) Program

Consumers can purchase federal flood insurance in one of two ways: through NFIP Direct Program agents who deal directly with FEMA or through their regular homeowner’s insurance company, called Write Your Own (WYO) Program. Under WYO programs, private property and casualty insurance companies who enter into an arrangement with FEMA can write federal flood insurance under their own names. The insurers that participate in WYO programs receive an expense allowance and transfer premium income in excess of claims to the Federal Government. FEMA pays the losses and sets the rates, coverage limitations, and eligibility requirements. The flood coverage premium charged by a Write Your Own company is the same as that charged by the Direct Program.

For additional information agents may call 1-800-480-2520 or log on to https://www.fema.gov/write-your-own-wyo-program. Agents can receive help from their WYO companies for training and support in writing flood insurance coverage.

FEMA and Related Websites

https://www.fema.gov/nfip

The Federal Emergency Management Agency website has information that may be accessed by simply logging on to their website.

https://www.floodsmart.gov

The Federal Emergency Management Agency public awareness and advertising campaign hopes to educate consumers on the availability of flood insurance. The FloodSmart campaign is designed to produce persuasive advertising so that renters, homeowners, and business owners are aware of their options and of the dangers that exist from flooding.

http://ww3.nfipstat.com/

Much of this course came from this website. It can be accessed by anyone wishing to receive training at no cost. It is important to note that there will be no state credits given for completing the tutorial, however.

United Insurance Educators, Inc.

Eatonville, Washington 98328-8638

Telephone: (800) 735-1155

FAX: (253) 846-7536

Email: mail@uiece.com

[2] FEMA, The National Flood Insurance Program, Floodplain Management

[5] 2005, Number 2 National Flood Insurance Program FEMA bulletin

[6] Page 11 2005, Number 2 National Flood Insurance Program