NFIP

Section II-Flood Maps and Zone Determinations Flood Insurance Survey

A Flood Insurance Survey (FIS) is a compilation and presentation of flood risk data for specific watercourses, lakes, and coastal flood hazard areas within a community. The FIS report is not intended to delineate all flooding risk for a community but to be applied to specific risks. The data may subsequently be incorporated into a FIRM.

Rating and Handling Claims Section VI-Claims Handling Process Helping Your Client to File a Claim Claims Adjustment

A certified flood insurance claims adjuster is required to verify damage. Most adjusters are employed by the insurer of record. On occasion, an adjuster may be hired directly by the NFIP. Private adjusters are also available but generally only employed if a dispute or appeal arises. NFIP guidelines are for an adjuster to contact claimants within 48 hours but delays may occur in large events. Agents are encouraged to check on any adjustment delayed by more than a few days. NFIP policies include provisions that require policyholders to cooperate with adjusters. Failure to cooperate with an adjuster can invalidate a claim. The NFIP Handbook states, "You should also be aware that an adjuster cannot approve (or disapprove) your claim, or tell you when or if the insurance company will approve it. Recovering from a flood is very stressful for home or business owners, but by cooperating with your adjuster, your claim can be processed more smoothly and efficiently." Adjusters cannot approve claims but can authorize advance or partial payments (which are then deducted from any final settlement and are subject to restrictions if the policy supports a mortgage). Some damage may require more than a single adjustment inspection. Property owners are encouraged to point out any damage that might be included in a claim; it's common, however, for an adjuster to find damage the property owner has overlooked and the loss estimates from the adjuster is often greater than that supposed by the property owner. If a dispute about the loss arises, the NFIP requires that the owner attempt to resolve it with the original adjuster before resorting to an independent adjustment or through the appeals process.

Rating and Handling Claims Section VI-Claims Handling Process Resolution of a claim

Claims are payable only after a complete, accurate and signed POL has been received and the policyholder and the insurer agree on the amount of damages. Payments for property may be to the mortgage holder but personal property claims are always paid directly to the policyholder. Payments may be delayed after a major event.

Community Participation Coastal Barrier Resources System and Other Protected Areas The CBIA

In 1990, Congress passed the Coastal Barrier Improvement Act (CBIA). The CBIA tripled the size of the system established by the CBRA. The CBIA also does not allow the issuance of new federal flood insurance within "otherwise protected areas" on buildings constructed after November 16, 1991, unless the building is used in a manner related to the reason the area is protected. Otherwise Protected Areas (OPAs) are generally used for activities such as fish and wildlife research and refuges.

Community Participation Who Needs Flood Insurance? Recommended in Moderate and Low Flood Risk Zones

Many homeowners in low-and-moderate-risk areas are unaware of the advisability, availability, and affordability of flood insurance through the NFIP. As noted above, every structure, wherever located, is susceptible to flooding either from natural causes or from engineering failures, such as dams breaking, etc. The failure of a dam can cause flooding with scant advance warning. FEMA estimates that at least 2,000 dams nationwide have deteriorated enough to present a risk of failure. This potential danger is not reflected in risk hazard maps or FIRMs and can affect homes and businesses in mild-to-moderate risk areas. Flash floods can also occur in zones not listed as at high risk of floods if rainfall overwhelms storm drains or other mitigation efforts. Standard policies do not cover this peril and the damage to irreplaceable items and the cost of clean-up and repair after any flood is considerable. FEMA estimates the average damage from 1" of water in a 2,000-square-foot home at $20,000; damage escalates rapidly if water level is higher. Almost all homes in low-and-moderate risk flood zones are eligible for NFIP insurance at very low cost, given the potential losses of an event. A Preferred Risk Policy for a residence without a basement covered at the highest available limits ($250,000 for the structure and $100,000 for the contents) is currently priced at $414 a year (or less than $35 a month), increasing to $460 annually with a basement. Premiums decrease for lower levels of coverage. These rates are set by FEMA and are the same regardless of the part of the U.S.A. and manner by which the policy is obtained. Renters in low-and-moderate-risk areas are encouraged to take advantage of a "contents-only" preferred rate plan, priced at $221 annually for above-ground possessions up to the $100,000 limit. Typically, renters are more often exposed to flood damage than homeowners, since rental properties are more often located at lower elevations than private homes. Like a homeowner's policy, basic Renters Insurance does not protect against the peril of floods. Some Renters Insurance is available, however, that incorporates a NFIP policy covering possessions as a regular feature of or endorsement to the basic policy. Flood insurance coverage is even more strongly advised for commercial properties that may be exposed to mild-or-moderate flood risk than to homeowners. FEMA statistics show that one in four businesses that shut down as a result of flooding never re-open. Like renters, businesses are more often located at lower elevations, so are often at greater risk of flooding. Some businesses are historically located along waterways, heightening risk (often but not always resulting in being placed in a high-risk flood zone). In addition to direct damage from a flood, inventory and losses to contents for a business can be considerable. Loss of use can be devastating to a business. In order to reflect this heightened exposure, coverage limits for commercial properties are considerably higher ($500,000 for the structure and $500,000 for the contents) with the preferred rate for this level of coverage (with no basement) still maintained at an affordable level, $2,880 a year.

Rating and Handling Claims Section V-Rating Types of Buildings

Rate tables distinguish between elevated and non-elevated buildings, but only if it is a post-FIRM building. Pre-FIRM elevated and non-elevated buildings are rated on the same terms.

Section III-Policies and Products Available Property Covered Personal Property

Significant reimbursements for losses are provided for those who purchase coverage for contents. Among the items covered are... Personal Belongings (such as clothing, furniture, and electronic equipment) Curtains (portable and window air conditioners) Portable Microwave Ovens (and portable dishwashers, clothes washers and dryers) Carpets (not included in building coverage, not permanently installed) Food Freezers and the Food in Them Certain Valuable Items (such as original artwork and furs, up to $2,500)

Section VII - Requirements of the Flood Insurance Reform Act of 2004

The Bunning-Bereuter-Blumenauer Flood Insurance Reform Act (FIRA) of 2004 mandated creation of the training requirements that form the basis for this class. The Act had two other main purposes (other than reauthorizing the NFIP, itself)... Creating a pilot program intended to mitigate the damage and costs associated with repairing properties with severe repetitive flood losses and Delineating specific responsibilities for NFIP agents and producers at the point of sale and renewal.

Community Participation Why Flood Insurance is Better than Disaster Assistance Flood Insurance Required for Federal Disaster Relief

The National Flood Insurance Reform Act of 1994 created a requirement for any building located in a SFHA that has received financial assistance in the form of a federal grant or loan due to being damaged in a flood to thereafter maintain flood insurance for both the insurable property and its contents. This requirement persists even if the building is replaced by a new structure. Each owner is obligated to inform any buyers that they are required to maintain coverage. If flood insurance is allowed to lapse, future federal assistance in the event of a flood will most likely be unavailable.

Section III-Policies and Products Available Increased Cost of Compliance Coverage Covered ICC Claims

There are four ways to comply with a community's floodplain management ordinance to help reduce future flood damage that are covered by ICC. It is up to the insured to choose among the options. They are... Elevation Relocation Flood-Proofing (primarily for non-residential buildings) Demolition

Rating and Handling Claims Section V-Rating Information Needed for Rating What are the Specifics of the Property?

There are numerous factors that affect how the property will be assessed by the NFIP. You need to clarify what is the occupancy of the building (Single Family, 2-4Family, Other Residential, Non-Residential, or Manufactured/Mobile Home), how many floors (including any basements or auxiliary enclosed areas) does it have, and what would be the replacement cost for the structure. Key factors include whether there is a basement or enclosure, whether there is machinery in the basement or enclosure, whether there has been flood-proofing, etc. Finally, there are different standards and rates for manufactured homes, multi-family structures, and condominiums as well as for commercial or "non-residential" (investment) properties.

Section IV-General Rules Loss Settlement Special Loss Settlement

This category applies only to a manufactured (mobile) home or travel trailer that serves as a principal residence and is at least 16 feet wide, with an area of at least 600 square feet. A special loss settlement does not apply if the structure is repairable (settled on an RCV basis) or if it doesn't qualify under size or principal residence standards (settled on an ACV basis). If a qualifying single-family dwelling that is a manufactured (mobile) home or travel trailer is a total loss or is not economically feasible to repair, then the adjustment of the property will be the lesser of... The replacement cost of the dwelling or 1.5 times the actual cash value, or the building limit of liability.

Section III-Policies and Products Available Damages Not Covered Apportionment

One of the most misunderstood and highly charged conflicts with regard to flood insurance arises when apportionment is assigned to flooding vs. other causes (principally wind). As noted above, as a single-peril policy, only damage directly resulting from flooding is covered by the NFIP. This does not mean that other damages are not covered; a property that is properly insured will almost certainly have other applicable insurance policies. Damage to a structure and possessions resulting from the peril of wind, for example, is most often covered by a homeowner's, renter's, or commercial Property & Casualty (P&C) insurance policy. Damage resulting from flooding is not covered in these basic policies but is usually obtained through the NFIP. The private insurer doesn't pay for the flood damage, which is why the NFIP was created. Similarly, the NFIP won't pay for damages covered by the private insurer or it would quickly become insolvent. On a practical level, apportionment is usually made at the site by a single adjuster, even where more than one policy exists. The adjuster who assesses how much damage can be apportioned to the various causes is most often hired by and works for a private insurer who may have issued both the P&C and flood insurance policies or may have only issued one policy. In cases where only a basic policy and no flood insurance policy applies, apportionment is made for the percent of damage due to wind (which is covered) and flooding (which is not covered). It should be noted that numerous court challenges have been brought alleging that private insurance adjusters have an incentive to apply as much damage as possible to flooding and not to other causes. Since the private insurer pays for damages related to covered perils in its policies, the incentive is to make the damages assessed for wind (for example) as low as possible and the damages assessed to flooding as high as possible. Damages paid for flood damage don't come from the assets of the issuer of record but from the NFIP and ultimately the U.S. Treasury. This issue becomes particularly relevant to a claim when the insured has no flood protection policy or the limits of their flood insurance is insufficient to cover the damages apportioned to flooding. In such cases, the insured seeks to overturn the apportionment ascribed to flooding in favor of a peril covered by their policy. Courts have overwhelmingly found in favor of insurers in these cases, generally on the basis of facts. That is, the damage resulting from causes such as wind is generally clear as to causation. Damage resulting from flooding is also clear. Despite perceived incentives to overestimate damage due to flooding and under-estimate damage due to other causes, courts have rarely found a malignant pattern of improper apportionment. Note: After persistent allegations and court cases claiming improper apportionment, the GAO undertook a study of the problem and published its findings in 2008. No pattern of improper apportionment was uncovered nor any concerted attempt to defraud the NFIP by private insurers assessing damages in excess of those directly caused by flooding. The one problem that was uncovered was a lack of transparency on the part of private insurers as to means for apportioning claims. As a result, new reporting requirements have been instituted regarding apportionment and further changes may be forthcoming. As one analyst, R.J. Lehman wrote in R Street in August 2012, "A key motivator...is to protect the U.S. Treasury and by proxy, U.S. taxpayers from paying for windstorm damage that should properly be assessed to private insurers. It is probably the case that fears of insurers sloughing off claims onto the public are largely overblown; as previously mentioned, in most storm claims, causation is fairly clear. But the conflict of interest embedded in the NFIP's Write Your Own program-in which private insurers who frequently are also the primary homeowners' insurer on a property are paid to adjust claims on behalf of the NFIP-is a concern. Even if only to avoid the appearance of a conflict, a system that makes use of the best available science to delineate wind claims from water claims will serve everyone involved much better than the current system.

Rating and Handling Claims Section V-Rating Repetitive Claims

A goal in the original 1968 was to reduce repetitive claims on the same property through flood prevention and mitigation efforts or by attrition of these properties from the NFIP. The goal has not been met, and numerous criticisms related to repetitive claims are of concern to Congress and FEMA. There are two categories recognized by the NFIP for properties that suffer more than one loss due to flooding... Repetitive Flood Claims (RFC):Two paid flood insurance claims within 10 years for which the cost of repairing the flood damage averaged at least 25 percent of market value at the time of each flood and Severe Repetitive Loss (SRL):Four or more separate claim payments since 1978 (and two within 10 years) of more than $5,000 each (including building and contents payments) or two or more separate claim payments (building payments only) within 10 years where the total of the payments exceeds the current value of the property. Properties that qualify as RFC are eligible to receive ICC payments (if their community has repetitive loss provisions in its flood management plan). The owner may be required by the community's flood management plan to make further efforts to prevent future flood damage. Despite repeated claims, these policies may be renewed normally and rated without any penalties or additional assessments. Biggert-Waters eliminated direct assistance for flood mitigation to RFC property owners but they may be eligible for community-sponsored programs. Properties that qualify as SRL may not be rated normally. As of 2007 (as per the FIRA of 2004) any renewals for such properties are handled by the Special Direct Facility. The current agent remains the agent of record and receives a commission equal to that of any national direct flood insurance policy. As with RFC, direct grants through SRL to property owners was eliminated in BW12, but they may be eligible for programs sponsored by the Unified Hazard Mitigation Assistance program.

Rating and Handling Claims Section VI-Claims Handling Process Before a Claim is Filed

Advising a client to take steps before waters rise will make the claims process much easier if and when a flood occurs. Prepare Lists and Documentation (take photos or video of the home's interior and exterior If the policy includes contents coverage, have a detailed list of the contents and/or personal property and/or business inventory, etc., include date and place of purchase, model number, serial number (for large appliances), descriptions, original purchase costs (with receipts, if possible), take photos or video of the personal property) Secure Important Papers (originals of important insurance papers should be kept in a safe place, such as a bank safety deposit box or away from flood-prone areas, be sure to include contact information for the agent or company, important receipts, the flood insurance policy and documentation of personal property and contents of the home, keep copies in a home or business in the safest, most accessible place possible that is the least likely to flood, protect other valuable papers such as deeds or stock certificates) Move Any Valuable Items Out Of The Basement (flood insurance only covers certain items normally found in a basement, such as a furnace or water heater, if content coverage is purchased, portable personal items in a basement will likely be excluded) Since flood insurance expires annually, make it a point to update coverage, documentation and papers at renewal time Check the policy, including the declarations page Make sure all the information is correct, including information about the mortgage company; if the property is refinanced with a company other than the one shown on the policy, it should be updated at that time, without waiting for the annual renewal Remember to advise your clients that the number one rule in a flood is to stay safe. Remind them not to take chances in defense of property that could cost a life. As an insurer, you want your client to stay safe and healthy and to be well-prepared to file a valid and acceptable claim.

Rating and Handling Claims Section V-Rating Types of Buildings Buildings with Basements

All rates vary based on whether a basement or enclosure is to be included in the coverage. As noted above, additional exclusions apply to portions of an insured structure below ground level. In rating a structure with a basement or crawlspace, therefore, it must be determined what the difference is in height between the BFE and the floor of the crawlspace or basement. A different rate applies if the floor of the basement or crawlspace is at or above at BFE. Different exclusions may apply as well. A house with a basement or crawlspace that is required to have flood insurance must include that space in the coverage. If flood insurance is not mandatory, it is permissible to purchase coverage for a structure and not insure the basement or crawlspace. However, such the coverage is highly advisable since it offers considerable additional protection with only a modest increase in premium rates.

Rating and Handling Claims Section V-Rating Information Needed for Rating Is an Elevation Certificate Required?

Any post-FIRM structure in a high-flood hazard area will need a Base Flood Elevation (BFE) certificate on file. This certifies to what extent that structure is subject to a 1% or greater risk of flooding in any given year. If the owner doesn't have a needed BFE, it may be on file at the local planning department or can be obtained through the services of a land surveyor, architect or certified engineer. An alteration to the structure for the purpose of improving the BFE can result in dramatically lower premiums, so an updated elevation certificate is vital, if available. Another vital factor is the Lowest Floor Elevation (LFE). This should also be provided on the Elevation Certificate. One of the primary determinants of the premium rate is the difference between the LFE and BFE. If, for example, the LFE is 10' and the BFE is 9', the elevation difference is 1'. Determining the elevation difference is critical rating information.

Rating and Handling Claims Section V-Rating Types of Buildings Elevated Buildings

As noted earlier, FEMA defines an elevated building as a structure without a basement that has had its lowest elevated floor raised above ground level. A crawlspace for such a structure is defined as an enclosure. An Elevated Building Determination form must be included with an application to receive this rating. It may appear to the insured to be more advantageous for the building to be rated as elevated, because the policy will be less expensive. However, at the time of a loss, there are coverage limitations outlined in the policy below the lowest elevated floor of a post-FIRM elevated building. The Elevated Building Determination forms highlight the coverage limitations below elevated floors and are to be signed by the applicant and kept as a permanent part of the company's policy file.

Rating and Handling Claims Claims Handbook

FEMA makes available to all policyholders the Flood Insurance Claims Handbook, a guide cited throughout this section of the course that outlines the steps involved in the claims procedure to be taken before and after a flood.

Section VII - Requirements of the Flood Insurance Reform Act of 2004 Point of Sale and Renewal Responsibilities Notification of Coverages Being Purchased

FIRA specifies that agents are responsible for an explanation of "the exact coverages being purchased by a policyholder" at the time of purchase. This explanation should include definitions that apply to coverage, exactly what structures and/or contents are covered and in what amounts, percentage of the total coverage applied to basements or appurtenant structures, etc. The notification should clarify deductibles and how they are applied.

Rating and Handling Claims Section V-Rating Information Needed for Rating How Much Insurance is Required or Selected?

If the property is in an SFHA it must have flood insurance sufficient to cover any mortgages or to cover the full replacement cost of the structure, whichever is lower (up to the limits of coverage available through the NFIP). If there is no mortgage or the property is in an NSFHA (Non-Special Flood Hazard Area), having flood insurance is optional but may be highly advisable. The amount of coverage and size of the deductible in this case can be determined by the insured. A property required to maintain flood insurance may also have an option for a higher deductible (but approval by the lender may be required for higher deductibles). The issue of coverage for possessions (up to $100,000 for residence and up to $500,000 for businesses) is entirely separate. This coverage is always optional but may be as important to the insured as coverage for the structure since flood damage to possessions may often be higher than damage to the structure, itself. It is essential that all discussions about coverage choices should be documented, particularly if coverage is diminished or declined for any reason.

Rating and Handling Claims Section VI-Claims Handling Process

In many ways, the claims process for flood insurance is akin to that of any P&C policy: an insured contacts the insurer, files a proof of loss, and the claim is adjusted. Floods, however, are chaotic events that may affect many people and properties in a short time. Anxiety, misunderstandings, and variable outcomes for claims can be amplified in a flood. As an NFIP agent, your responsibility to a client begins before a claim is filed and continues until a claim has been settled.

Rating and Handling Claims ICC Claims

Only communities enrolled in the Increased Costs of Compliance program may authorize an ICC claim. Those properties eligible to file such claims will be notified by the enrolled community that an ICC claim must be filed within 60 days of that notification. ICC claims are filed by the insurer in the same manner as any other flood insurance claim. ICC claims are adjusted and paid separately from flood insurance claims, but may not duplicate coverage. If a claim is approved, the selected flood mitigation efforts must be completed within four years.

Rating and Handling Claims Section VI-Claims Handling Process Helping Your Client to File a Claim Proof of Loss

Policyholders are required to file a Proof of Loss (POL) within 60 days. Extensions are available under certain circumstances. Two considerations are paramount... The policyholder is responsible for preparing and filing a complete, detailed, accurate, and signed POL by the deadline. The adjuster will usually prepare a suggested POL as a courtesy and is required to provide a POL form. However, it remains the responsibility of the policyholder to file a POL. Failures with regard to the POL are the most common reason for denied claims and factor into numerous lawsuits related to flood insurance. The same estimate that is used to prepare a POL is useful in arranging for repair and/or replacement of damaged property. The more documentation that is provided along with the POL, including receipts for proposed or completed repairs and replacements, the more likely a claim will be settled in a satisfactory manner. Inventories, receipts, and pictures compiled before the flood are also useful documentation to accompany the POL. If damage not found in an original adjustment is discovered after filing the POL, an Additional Flood Payment claim may be filed, with the same steps required as for the original claim (except that the adjuster can be contacted directly as well as contacting the agent of record). The original claim should not be affected by an additional filing.

Rating and Handling Claims Section V-Rating How to Determine the Premium

Rate charts for flood insurance premiums are organized to show how much each $100 of annual coverage costs for each of the risk zones, depending on whether the structure is pre-FIRM or post-FIRM. These rates are provided both for basic coverage and for additional coverage. As noted above, basic coverage (the first $60,000 for a home and first $175,000 for a business) is priced slightly differently than so-called "additional" coverage. These rates are the beginning step for a premium calculation, which can be determined as follows... 1. Determine rate and multiply by $100 of coverage; 2. Subtract deductible discount, if applicable; 3. Add Increased Cost of Compliance (ICC) premium (not subject to deductible discount); 4. Subtract Community Rating System (CRS) discount; 5. Add Federal Reserve Fund Assessment; 6. Add probation surcharge, if applicable. (A community non-compliant with floodplain management criteria is placed on a one-year probation, which may be extended, during which an additional $50 is charged to all NFIP policies that are issued) 7. Add Federal Policy Fee (charged for new policies and renewals, for example $44)

Rating and Handling Claims Appeals Process

The "Flood Insurance Claims Handbook" given to policyholders outlines these steps if the insurer and policyholder are unable to agree on the settlement of a claim... STEP 1 Talk with your adjuster, who has more knowledge about your claim than anyone. If you don't understand certain decisions regarding, for example, application of coverage, timing of the filing of Proof of Loss,or the damage estimate, contact your adjuster first. STEP 2 If you are not satisfied with the adjuster's answers, or do not agree with decisions, get contact information for the adjuster's supervisor. STEP 3 If the adjuster's supervisor can't resolve your issues, contact the insurance company's claim representative. Ask your insurance agent or your insurance company representative for assistance. STEP 4 If you still have questions or concerns after following steps one through three, contact the Federal Emergency Management Agency (FEMA). In addition to the steps suggested by the NFIP, having the adjuster speak directly to the contractor or professional engaged for repairs, rebuilding or replacement may resolve disagreements without the need to file an appeal.

Section VII - Requirements of the Flood Insurance Reform Act of 2004 Point of Sale and Renewal Responsibilities

The FIRA requires that agents deliver certain documents and forms to all holders of flood insurance policies at the time the policy is either purchased or renewed. These include... 1) A Notification of Coverages Being Purchased to help consumers understand NFIP coverage, policy exclusions, adjustments and claims. 2) An Acknowledgement Form that the purchaser has been told that the contents of a property or dwelling are not covered by a standard flood insurance policy and (for those who do not purchase it) that the purchaser has been told of the opportunity to purchase contents coverage. This form must be signed by the purchaser and mailed directly to FEMA. 3) An Explanation of How Lost Items and Damages Will Be Adjusted (replacement cost vs. actual cash value). 4) A copy of FEMA's Flood Insurance Claims Manual, to be made available at the time of purchase and at each renewal.

Section VII - Requirements of the Flood Insurance Reform Act of 2004 Point of Sale and Renewal Responsibilities Notification of Coverages Being Purchased Policy Exclusions that Apply

The FIRA also specifies that the notification must contain "any exclusions from coverage that apply to the coverages purchased." The many exclusions in NFIP policies have been addressed extensively in this course. For example, most personal items in a basement are excluded, items not contained within four rigid walls and a ceiling, cars, items or perils already covered by private insurance, etc., are not covered by flood insurance. In addition, there are limitations on the amount of coverage for valuable personal items. It is the responsibility of the agent to provide details and explanations of these limitations and exclusions at the point of sale or whenever there are changes to a policy that might affect the exclusions and limitations that apply to a policy.

Section VII - Requirements of the Flood Insurance Reform Act of 2004 Point of Sale and Renewal Responsibilities Explanation Regarding How Losses Will be Adjusted (ACV vs. RCV) Number and Dollar Amount of Claims for Property

The FIRA requires that agents notify policyholders of "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 (42 U.S.C. 4001 et seq.), of the filing of any further claims under a flood insurance policy with respect to that property." The original 1968 legislation, the 2004 FIRA, the 2012 Biggert-Waters, and the 2014 HFIAA all specify required notifications of claims and/or financial assistance applied to properties that have filed repeated flood insurance claims. In many cases, these properties may be excluded from future disaster relief claims if they fail to follow NFIP guidelines. Some properties may be placed under the Special Direct Facility for underwriting. Some areas were designated under FIRA for a pilot program intended to address properties that had suffered repeated losses through subsidized improvements and additional flood mitigation efforts. In addition, there are fundamental changes as to how property is rated once more than 50% of the original structure is repaired or replaced (pre-FIRM vs. post-FIRM) or if NFIP coverage is allowed to lapse. The Act requires that policyholders be informed of what percent of damage or amount of damages had already been applied to the property and to have information, in advance, of what additional percentage of damage would affect their ability to have subsidized premiums or to be eligible for assistance for flood mitigation efforts.

Section VII - Requirements of the Flood Insurance Reform Act of 2004 Point of Sale and Renewal Responsibilities Explanation Regarding How Losses Will be Adjusted (ACV vs. RCV)

The FIRA requires that agents provide "an explanation, including illustrations, of how lost items and damages will be valued under the policy at the time of loss." This class has already covered the policies that allow for replacement cost valuation (RCV) of flood damages, which is generally a higher amount than actual cash value (ACV), since actual cost usually reflects only the cost at the time of purchase minus depreciation. Residential policies often allow for RCV although a policyholder always has an option to request ACV. The FIRA requirements specify that these differing methods of valuation are illustrated. The Act therefore requires that the documentation supplied to all policyholders must include charts that illustrate ACV vs. RCV valuation methods.

Section VII - Requirements of the Flood Insurance Reform Act of 2004 Flood Insurance Claims Handbook

The FIRA requires that, at the time of purchase, renewal, or at any time of loss, policyholders be provided with a manual that includes "a description of the procedures to be followed to file a claim under the Program, including how to pursue a claim to completion; how to file supplementary claims, proof of loss, and any other information relating to the filing of claims under the Program; and detailed information regarding the appeals process established under section 205." As mentioned above, FEMA routinely mails a copy of this manual, the Flood Insurance Claims Handbook, to all policyholders with a form acknowledging its receipt. Adjusters can furnish a copy if requested during an evaluation of damages. Agents may give clients a copy of the handbook as well and should, at a minimum, review it with purchasers of new policies or at a time of renewal or changes of coverage.

Section VII - Requirements of the Flood Insurance Reform Act of 2004 Point of Sale and Renewal Responsibilities Acknowledgement Forms

The FIRA specifies that, at the point of sale, agents must supply an "acknowledgement form to be signed by the purchaser of a flood insurance policy that contains... (1) an acknowledgement that the purchaser has received a copy of the standard flood insurance policy, and any forms developed under section 202; and (2) an acknowledgement that the purchaser has been told that the contents of a 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 such contents. Signed copies of these acknowledgements must be in the client file, supplied to the purchaser, and provided to FEMA. Best practices are for any flood insurance coverage available but not purchased be documented with a signed acknowledgement that the property owner was informed of the available coverage and declined to purchase it. FIRA specifies that a policyholder that declines contents coverage have that decision documented. In addition, FEMA responded to the 2004 FIRA by creating an acknowledgement form that the agency supplies directly to all policyholders. This form is sent with a packet that includes the Flood Insurance Claims Handbook and a prepaid envelope to return a signed copy of the form. This form is intended "to let policyholders know that the information in the packet is important and should be reviewed and retained. When completed and returned, the form helps FEMA make sure that the packet reached the policyholder, as Congress intended." There are no penalties for failure to sign and return the form to FEMA; it is intended as a courtesy to policyholders.

Rating and Handling Claims Section VI-Claims Handling Process Helping Your Client to File a Claim Immediately After Sustaining Flood Damage

The following steps to be taken in the immediate aftermath of a flood are delineated by FEMA in the "Flood Insurance Claims Handbook" provided to policyholders... STEP 1 Contact Your Agent or Company Representative to Report Your Loss: Have ready-the name of your insurance company, policy number and a phone number and/or e-mail address where you can be reached. All flood insurance policies require you to give prompt written notice of loss. If you get in touch with your agent or company representative directly, they will advise you how to file your notice of loss. Otherwise, you must send a written notice to your insurance company with your policy number. STEP 2 Separate Your Property: Your policy also requires you to separate damaged property from undamaged property. Don't throw anything away before an adjuster has seen it, unless local law requires you to do so. In that case, take photos of the property before disposing of it and keep samples for the adjuster to see [for example, cut out a piece of wall-to-wall carpet]. Do all you can to protect undamaged property. However, prior to signing an agreement/contract with a cleaning, remediation, or maintenance contractor, you should consult with your flood adjuster or flood insurer concerning coverage. STEP 3 Make a List of Damaged Contents: If you've purchased contents coverage, make a list of damaged property. If you prepared comprehensive lists before the flood, this should be relatively easy. List the quantity of each item, a description, brand name, where purchased, its cost, model and serial number (if appropriate)and your estimate of the loss amount. Attach your bills, receipts, photos and any other documents. STEP 4 List Areas of Structural Damage: As you look over your property, make a list of any areas of structural damage you want to point out to the insurance adjuster. In addition to these steps, reiterate how useful it is to take photos of damaged property. Cleaning, using tarps or other measures to protect undamaged property, and arranging for repairs prior to receipt of a settlement are all acceptable as long as it doesn't violate the claims adjustment procedure. As when preparing for a flood, however, remind your client to stay safe. Contaminated food, sewage, escaping gas, and downed power lines are all additional substantial perils in the immediate aftermath of a flood. The insured is required to take any reasonable steps to prevent further damage to property, but only when it's safe to do so. Taking full precautions to avoid personal harm will never invalidate a claim.

Rating and Handling Claims Section V-Rating When to Use an Elevation Certificate

Under certain situations, an elevation certificate must be included with an application for NFIP insurance. This certificate verifies the elevation of the lowest floor of a structure relative to the ground. An elevation certificate is only required if the building was built, or substantially improved, on or after the date of the community's initial Flood Insurance Rate Map (FIRM). These buildings are considered to be Post-FIRM. In zones A, AE, A1-A30, AH, AO, VE, and V1-V30, an Elevation Certificate (EC) for Flood Insurance is required of post-FIRM structures to determine the full-risk rate. An EC is not required to determine premium rates for policies eligible for rating in zones AR and AR Dual, A99, B, C, D, V, and X. Even if an elevation certificate is not required, inclusion of this material can significantly decrease rates for some properties. A property owner who needs to pay for a new EC should weigh that expense against potential savings from having an EC on file. 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. The elevation difference can be a number of feet above ( ) or below (-) the BFE. If the BFE and/or the lowest floor elevation is shown in tenths (e.g., 10.5'), the agent/producer must apply the rounding rule to the difference between the elevation of the lowest floor for rating and the BFE. If the difference is negative, the final figure is rounded up from .5. If the difference is positive, the final figure is rounded up from .5. Always round to the higher elevation. For example, -3' is higher than -3.5' and 4' is higher than 3.5'. It should be noted that FEMA is changed to a new EC beginning in August 2012, with mandatory use of the new form after August 2013.

Rating and Handling Claims Section V-Rating Grandfathering

When new flood maps are issued, flood risk may become higher or lower, which can significantly affect flood insurance premiums. There is usually a six-to-twelve-month period between the time the new "preliminary" maps are issued and the time that they are implemented during which property owners are encouraged to explore ways to maintain affordable coverage or lower premiums in the future. To recognize policyholders who were in compliance with the FIRM that was effective when the building was constructed, the NFIP has "grandfather rules" that allow policies to be rated based on the FIRM that was in effect when the structure was built (supporting documentation that confirms the flood zone and/or BFE information from the prior FIRM is required to grandfather the rating). In effect, NFIP grandfathering rules allow policyholders who have built in compliance with the flood map in effect at the time of construction to keep the earlier BFE to calculate their insurance rate. These rules allow policyholders to benefit in the rating for that building. For such buildings, the insured would have the option of using the current rating criteria for that building or having the premium rate determined by using the BFE and/or flood zone on a previous FIRM that was in effect when the building was originally constructed (for those built in compliance)or when coverage was first obtained (for those with continuous coverage). This leads to cost savings to insureds when the new map resulting from a map revision would result in a higher premium rate. NFIP "grandfather rules" do not apply to the low-cost Preferred Risk Policy (PRP). The FIRM in effect when the PRP is purchased or renewed determines eligibility for the PRP. In other words, only a current FIRM is acceptable documentation to purchase a new PRP or to continue to participate in the program. However, both Pre-and Post-FIRM buildings mapped into a high-risk area after October 1, 2008 are eligible for a two-year PRP extension. The properties also become eligible for grandfather rules after the two PRP extension years are completed. To qualify for grandfather rates after the two extended PRP years, the grandfathering guidelines must still be met; e.g., pre-FIRM buildings must maintain coverage continuously and have no substantial damage or improvement to be eligible for grandfathering after the PRP extension period is over.

Section III-Policies and Products Available Definitions Elevated Buildings Definition

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

Community Participation Non-Participating Communities

A community that does not join the NFIP after being identified for one year as flood-prone, has withdrawn from the program, or is suspended from it faces the following sanctions... No resident will be able to purchase a federally-issued flood insurance policy. Existing federally-issued flood insurance policies will not be renewed. No federal grants or loans for development may be made in identified flood hazard areas under programs administered by federal agencies such as HUD, the EPA, and the SBA; No federal disaster assistance may be provided to repair insurable buildings located in identified flood hazard areas for damage caused by a flood. Federally insured or regulated lending institutions, such as banks and credit unions, must notify applicants seeking loans for insurable buildings in flood hazard areas that there is a flood hazard and that the property is not eligible for Federal disaster relief. No federal mortgage insurance or loan guarantees may be provided in identified flood hazard areas. This includes policies written by the FHA, the VA, and others. As noted in "A Brief History of FEMA & the NFIP," earlier in this course, an overwhelming majority of communities across the United States (over 21,000 out of an approximate total of 30,000) have opted to participate in the NFIP, and many of the non-participating communities are small in size or not flood-prone. As a result, almost all Americans have an opportunity to purchase flood insurance through the NFIP.

Section III-Policies and Products Available Definitions Flood FEMA's Definition

A general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area or of 2 or more properties (at least 1 of which is the policyholder's property) from overflow of inland or tidal waters or unusual and rapid accumulation or runoff of surface waters from any source or mudflow or 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. Note that this definition intends for a flood to be an event large enough to affect at least 2 acres or two properties, not an isolated and restricted event that affects only a single home or business.

Section III-Policies and Products Available Mudslides and Mudflows Mudflow

A mudflow is a runny, watery stream of mud. It is characterized by sediment borne by water in a manner similar to the flowing of water; it can move easily over level or even slightly inclined land, unlike a mudslide. A mudflow is considered a form of flooding and is covered by the NFIP. Mudflows are more likely in the wake of a fire or any devastation of ground cover followed by a heavy rain or snow melt. Mudflows are much harder to predict than mudslides because they can be triggered by heavy rain, melting snow and other weather events that aren't tracked by geological surveys and they can occur spontaneously.

Section III-Policies and Products Available Mudslides and Mudflows Mudslide

A mudslide is a movement of water-saturated earth downhill. Since it is a movement of earth, it is considered a peril similar to earthquakes or sinkholes. Potential mudslides, as geological phenomena, are easier to predict than mudflows. The nonprofit Insurance Information Institute states, "It is best that a homeowner be wary of living in an area prone to mudslides." Most "named peril" policies exclude movement of earth (including mudslides) as a covered peril, but coverage can be added, as noted below. Flood coverage cannot be added to a private insurance policy but are normally obtained instead through the NFIP.

Section I-Introduction Homeowner Flood Insurance Affordability Act (HFIAA) Grandfathering

A new purchaser will be allowed to assume the prior owner's flood insurance policy and retain the same rates until the guidance is finalized. Also, lapsed policies receiving Pre-FIRM subsidized rates may be reinstated with Pre-FIRM subsidized rates pending FEMA's implementation of the rate increases required by the Homeowner Flood Insurance Affordability Act. Properties newly mapped into Special Flood Hazard Areas will retain preferred risk policy rates for at least one year after the FIRM change.

Community Participation Why Flood Insurance is Better than Disaster Assistance

All Americans are aware that, as a country, we customarily respond to local disasters by offering federal and state assistance. This includes emergency services, technical support, supplies, and help in rebuilding. With regard to flooding, this has led to a critical misunderstanding on the part of many that, in a nutshell, "The government will bail me out" after a flood. The truth is that government financial assistance for flood victims is almost always in the form of loans which have to be repaid, not a direct payment. Disaster relief is often, in essence, a second mortgage. In short, each property owner remains responsible for the costs of rebuilding. Those costs can be borne through insurance, loans, or personal assets; not government bailouts. A summary of the advantages flood insurance has over disaster relief might include... Most forms of Federal disaster assistance require a Presidential declaration. Federal disaster assistance declarations are not awarded in all flooding incidents. By contrast, flood insurance claims are paid even if a disaster is not declared by the President. More than 20 percent of NFIP claims come from outside of mapped Special Flood Hazard Areas; in other words, areas that may not warrant a disaster declaration. Flood insurance reimburses all covered building losses up to $250,000 for residential occupancies and up to $500,000 for businesses. Contents coverage is also available up to $100,000 for residential occupancies and up to $500,000 for businesses. By contrast, the average "Individuals and Households Program" award for Presidential disaster declarations related to flooding in 2008 was less than $4,000. Repayment on a $50,000 SBA disaster loan at 4% interest is $2,880 annually. The average cost of a flood insurance policy is about $600 annually and there is no repayment for a covered loss with flood insurance; obviously, loans must be repaid with interest while no repayment is required for an insurance settlement.

Section IV-General Rules Deductibles

All NFIP policies apply deductibles before paying flood losses. As mandated by Biggert-Watters, a somewhat lower deductible is applied to "full-risk" policies than to policies that are subsidized (that is, pre-FIRM or other policies that not charged at full actuarial cost). Deductibles double if the insured structure is under construction as the time of the loss. For the RCBAP, a deductible applies to each unit.

Section III-Policies and Products Available

All policies are crafted for the specific situation, location, and individual choices made for that property. Flood insurance is unique, however, in that regardless of who purchases the policy, where in the country the property is located, and what company or agency handles the actual issuing of the policy, all the terms are uniform. The coverages, exclusions, rates, and conditions are set nationally and apply to every loan that forms a part of the NFIP. This provides a customer with clear choices and the job of a producer is to guide the customer through the choices that are available. This section will begin with definitions then go into what's covered and what isn't.

Section III-Policies and Products Available Property Covered Appurtenant Structures (Garage)

An appurtenance, in general usage, refers to anything that accompanies but is less vital than the principal element. For the purposes of flood insurance, an appurtenant structure is defined as a "detached garage servicing a 1-4 family dwelling." Most Americans assume that such a structure would be covered by flood insurance and they are correct. The structure itself and its contents (other than vehicles, etc.) are covered under the same terms as for the main structure, with the same inclusions and exclusions, up to 10% of the full limits of coverage. Any other detached structures on an otherwise insured property would not be covered by the same policy. Detached buildings (other than garages) require a separate Building Property policy.

Rating and Handling Claims Section V-Rating Information Needed for Rating Is the Property Located in a Community that Participates in the NFIP?

An overwhelming majority of communities participate in the NFIP and new communities are added to the program over time. If you have any doubt, there's an online tool to determine if the community participates in the NFIP. Be sure you have the full and exact address of the property.

Section III-Policies and Products Available Property Not Covered Additional Living Expenses

Another exclusion for flood insurance is for additional living expenses such as temporary housing and financial losses caused by business interruption or loss of use of the insured property. Some private insurance policies may cover these losses, but they are not covered by policies issued by the NFIP.

Section II-Flood Maps and Zone Determinations Flood Insurance Rate Map (FIRM) Pre-FIRM/Post-FIRM Defined

Any building constructed before and not substantially altered since December 31, 1974 or the first the adoption of a FIRM for that community (whichever is later) is eligible for a subsidized premium that doesn't reflect actuarial risk but gives the same protection as an unsubsidized rate. The building is "grandfathered" into the NFIP program. Eligibility is based on the building's date of construction, the dates of any alterations to more than 50% of the structure, and the date of the appropriate FIRM. To qualify, the property must be at least 50% prior construction and must have maintained continuous NFIP coverage up to the present from a time prior to the adoption of a new FIRM (either a revised FIRM or a FIRM for a previously unmapped area). Such properties will be granted an option to have a rate based on the previous FIRM or other rate-setting method in force prior to the new map. The owner also has an option to transfer this eligibility to a new owner. That is, a new owner can still have "grandfather" protection as long as the policy is maintained. If the pre-FIRM policy qualified for a Preferred Rate but the new FIRM changes that status, the property is eligible for a two-year extension of the preferred rate, after which it may still qualify for a subsidized rate reflecting moderate risk even if it has been mapped into a high-risk zone.

Rating and Handling Claims Section V-Rating Information Needed for Rating Is the Building Pre-FIRM or Post-FIRM?

Any building constructed before and not substantially altered since the adoption of a FIRM for that community (or before 1975) is rated differently from a building built or substantially altered since the adoption of a new FIRM. The building may be "grandfathered" to have a much lower rate and to be judged based on the standards enforced when the structure was built. If an earlier FIRM was in effect at the time, that may offer a lower premium to the owner. Similarly, a new FIRM that assesses a lower flood risk may offer the lower rate and should be used as the basis of rating. You need to determine the building's date of construction, the dates of any alterations to more than 50% of the structure, and the date of the appropriate FIRM that offers the policyholder the best possible rate.

Section III-Policies and Products Available Preferred Risk Policy; Types of Buildings Covered

Any building eligible for a Dwelling Policy, General Property Policy, or RCBAP may apply for a preferred risk version of the policy (PRP), provided the property is not located in a previously mapped (FHBM or FIRM) flood zone. These policies are designed for properties in low and medium risk flood zones as an alternative to the policies used for properties in high risk flood zones. As noted above, Residential PRPs are very affordable, as low as $57 a year for contents only and from $129 to $460 a year for coverage of structure and contents. Commercial PRPs are similarly affordable. The NFIP considers the Preferred Risk Policy a key component of flood insurance in the United States. As noted earlier, over 20 percent of NFIP claims come from outside of mapped SFHAs; in other words, properties that may be eligible for a PRP. Covering these properties is a key mission of the NFIP. Despite the ease and affordability of PRPs, only a small percentage of homes outside of SFHAs obtain and maintain flood insurance. The current and future solvency and efficacy of the NFIP relies, in part, on increasing as much as possible those who are not located in high-risk flood zones and who take advantage of PRPs to protect their property and/or possessions. The more Americans who participate in the NFIP (including those in high-risk, moderate-risk and low-risk zones), the more affordable and responsive the program can continue to be.

Section IV-General Rules Deductibles Applies Separately for Building and Contents

Any deductible applied prior to payment on a valid flood insurance claim covers either those losses suffered to the structure or those suffered by the contents. Each of these two deductibles on a flood insurance policy operate separately. Fulfillment of the deductible on one of these two types of claims does not affect the amount of deductible for the other type of claim. As noted above, no deductible is applied for increased cost of compliance claims or for loss avoidance efforts.

Section IV-General Rules Loss Settlement Actual Cash Value (ACV)

Any residential claim can specify a preference for an actual cash settlement of a claim rather than RCV. Residential claims that do not qualify for RCV (such as 2-4-family structures or a 1-family home not insured at maximum levels or at 80% of its full replacement cost) may also apply for an ACV claim. ACV is defined as "The cost to replace an insured item of property at the time of loss, less the value of its physical depreciation." In general, this will be a smaller amount than the RCV. Actual cash value is the lowest of these three amounts (after application of the deductible)... The actual cash value (cost minus depreciation) of the damaged part of the dwelling or a proportion (determined by the percentage of required coverage that was actually in place) of the cost to repair or replace the damaged part of the dwelling, without deduction for physical depreciation or the building limit of liability coverage. In other words, actual cash value assesses depreciation only if paying based purely on value and pays a percentage of the actual amount spent if paying based on what it cost to repair or replace. That percentage is calculated by comparing the liability coverage purchased to "required coverage" -- either the maximum available or 80% of replacement value -- such that, for example, if only 50% of the required coverage was purchased, 50% of the money spent to repair or replace would be a possible settlement amount. The lesser amount is always the amount paid. Commercial claims are, for the most part, adjusted on an ACV basis.

Section III-Policies and Products Available Property Covered Basements

As mentioned above, there is a common misconception that basements, crawl spaces, and enclosures under elevated buildings and their contents are never covered by flood insurance. In fact, the coverage is optional but available. The level of protection is broad and effective compared to the modest additional costs for coverage of basements and enclosures. Although it's true that there are far more exclusions in below-ground locations (drywall, personal possessions including clothes and furniture, and so on are not covered), significant inclusions remain. A partial list of what's covered in the below-ground portion of an insured building includes... The Building, its Structural Elements, and its Foundation The Electrical and Plumbing Systems. Central Air Conditioning Equipment, Furnaces, and Water Heaters Solar Power Equipment, Storage Tanks Refrigerators, Cooking Stoves, and Built-In Appliances (such as dishwashers or washing machines)

Community Participation Current Framework of the NFIP

As noted above, the NFIP has four components: risk identification/assessment, risk mitigation, insurance and subsidization. The four components work together to forge a comprehensive approach to flood insurance. They are also designed to work through collaboration with local communities. As a result, the NFIP is only available in communities that have taken the necessary steps to participate in the program.

Section III-Policies and Products Available Mudslides and Mudflows

As noted above, the single peril of floods is defined as flowing mud or flowing water. As such, the NFIP covers mudflows. Mudslides have much in common with mudflows but they are not considered flowing mud and therefore are not defined as a flood. They are not covered by the NFIP. As an insurance producer, it is important to understand the difference between these two perils.

Section III-Policies and Products Available Property Not Covered Decks and Other External Constructions

As noted earlier, NFIP coverage is limited to stairs and landings up to 16 square feet in size. If the deck attached to the structure is larger than 16 square feet, it is excluded from NFIP coverage. Other excluded items are walkways, patios, trees, plants, landscaping, wells, septic systems, fences, seawalls, hot tubs, and swimming pools.

Section IV-General Rules Deductibles Standard Deductibles

As of June 1, 2014, the following minimum deductibles apply to new or renewed standard flood insurance policies... $1,500 deductible for pre-FIRM or subsidized policies where coverage is $100,000 or less. $2,000 deductible for pre-FIRM or subsidized policies where coverage exceeds $100,000. $1,000 deductible for full-risk policies where coverage is $100,000 or less. $1,250 deductible for full-risk policies where coverage exceeds $100,000. Contents-only policies follow the terms applied to those policies where coverage is $100,000 or less. For policies older than June 1, 2014 and not yet due for renewal, the deductible can be found on the declarations page. Prior to the new schedule for deductibles, the customary minimum deductible was $500 to $1,000.

Section III-Policies and Products Available Damages Not Covered

As with all insurance, a balance is sought between two conflicting goals... Provide full coverage for every possible loss and maintain the solvency and affordability of the plan. Since the NFIP is created and maintained by Congress to serve the best interests of the American people, every effort is made to restrict payments in the event of a loss to those areas that are the most effective without limiting coverage unnecessarily. In other words, a desire to repair and replace the homes, businesses, goods, and possessions of every American who suffers a loss due to flooding must be balanced with a need to avoid placing an undue financial burden on those not directly affected by the floods. The solution advocated by FEMA is to take actions to enhance protection against floods (hopefully decreasing future claims) and, in the interim, to target NFIP coverage where it can have the greatest impact, to strictly define coverage, and to enforce significant exclusions to coverage.

Section II-Flood Maps and Zone Determinations Base Flood Elevation Zone Determination Base Flood Elevation vs. Design Flood Elevation

Base flood elevation (BFE) is the anticipated level relative to the lowest level above ground level to which water will rise during a 100-year flood. In other words, it is the height on a building to which flood waters have a 1% chance of rising in any given year. The relationship between the BFE and a structure's elevation determines the flood insurance premium. Measures to raise the base elevation of a structure can result in a lower premium. A BFE certificate (applied to a set of buildings or to individual structures) is often available for purposes of insurance, verification of code compliance, or qualification for other programs. The BFE then becomes the basis for the assigning of risk zones. A related concept is "design flood elevation" (DFE) which may or may not be the same as the BFE for any given property. The DFE is an application of flood projections to anticipate a specific event in a specific area either for engineering and architectural design work on that property or for a community's management plan. A 100-year flood may be the basis for a DFE, as it is for a BFE, or a 25-year flood or any other anticipated event for which the design is intended.

Community Participation Who Needs Flood Insurance? Mandatory Purchase of Flood Insurance in High Flood Risk Zones

Beginning in 1973, Congress mandated that most mortgaged properties in high-risk flood areas (defined as a 1-in-4 chance of flooding during the 30 years typical for many mortgages) must have flood insurance. Lenders and mortgagees can ascertain whether they are required to have flood insurance by reviewing the most recently adopted FIRM and FEMA rules, as follows... The FIRM designates "Special Flood Hazard Areas" (SFHA). These are designated on the FIRM by an "A" for a floodplain and a "V" for areas subject to water at velocity (coastal locations). Structures within a SFHA can be required to have a Standard Hazard Determination Form on file with a government-backed lender and proof of flood insurance adequate to pay off the balance of the loan (up to the limits of coverage available through the NFIP) in the event of a flood. It's up to the loan issuer who provides a government-backed loan to enforce this requirement and to retain proof of flood insurance coverage. If an owner fails to provide proof of flood insurance for a mortgaged property in a high-risk zone, a lender may "force-place" flood insurance on property. "Force-place" means the lender will buy a policy and bill the owner for it. Such policies typically cost significantly more than the policy the owner could have purchased on his own. No other form of collateral can take the place of flood insurance. Even if the mortgage has collateral that would pay off the balance in full in the event of a loss or default, the obligation to maintain proof of flood insurance remains. Lenders may require flood insurance even for properties not judged to be in a high-risk zone. They may not "force-place" a policy under such circumstances but are allowed to deny a loan unless proof of flood insurance is provided. A mortgage issued on a property that was NOT in a high-risk zone at the time but which is reassessed as high risk MUST have flood insurance just as any other property in a high-risk zone. However, a property redrawn into a high-risk area is eligible for waivers to delay premium increases for up to two years. The Preferred Risk Extension program will be covered later in this class. Renters in high-risk flood area should ascertain if their landlord has flood insurance but be advised that this insurance won't cover any of their personal possessions nor loss of use or dislocations as a result of flooding. Regardless of an owner's coverage, renters in "A" or "V" flood risk areas should retain flood insurance coverage for their possessions and for loss of use, but it is not mandatory for renters under any circumstances. A property in a high-risk area is not required to obtain flood insurance. The mandate only operates for federally regulated or insured lenders to require flood insurance in high-risk areas for a property on which they have issued a loan, with coverage amounts up to the level of the loan (not the value of the property). If the bank doesn't require flood insurance or the property has no mortgage liability, flood insurance is optional even in high risk zones. It is, however, highly recommended.

Community Participation Coastal Barrier Resources System and Other Protected Areas The CBRA

Coastal barriers are unique land forms that provide protection for distinct aquatic habitats and serve as the mainland's first line of defense against damage from coastal storms and erosion. In the 1970s and 1980s, Congress recognized that certain actions and programs of the federal government had historically subsidized and encouraged development on coastal barriers, resulting in the loss of natural resources, threats to human life, health, and property, and the expenditure of millions of tax dollars each year. To remove the federal incentive to develop these areas, Congress passed the Coastal Barrier Resources Act of 1982 (CBRA) which designated relatively undeveloped coastal barriers along the Atlantic and Gulf coasts as part of the John H. Chafee Coastal Barrier Resources System (CBRS), and made these areas ineligible for most new federal expenditures and financial assistance. The CBRA, while not forbidding privately financed development, does not allow new federal financial assistance, including flood insurance, within a designated CBRS. Responsibility for maintaining the CBRS is assigned to the U.S Fish and Wildlife Service.

Community Participation Eligible/Ineligible Buildings Ineligible Structures

Coverage for both structure and contents may not be available for buildings constructed or altered in any way that violates state or local floodplain management laws, regulations, or ordinances. Section 1316 of the National Flood Insurance Act of 1968 allows states to declare a structure in violation of a law, regulation, or ordinance. Flood insurance is not available until the violation is corrected and the 1316 Declaration rescinded. In addition, container-type buildings such as gas and liquid tanks, chemical or reactor container tanks or enclosures, brick kilns, and similar units, and their contents are ineligible for coverage. Buildings newly constructed or substantially improved on or after October 1, 1982, and located entirely in, on, or over water or seaward of mean high tide are ineligible for coverage. Some specific examples of ineligible structures are boat houses, decks (except for steps and landing; maximum landing area, 16 sq. ft.) a gazebo (unless it qualifies as a building), a greenhouse (unless it has at least two rigid walls and a roof), a hot tub or spa (unless it is installed as a bathroom fixture), a swimming pool (indoor or outdoor), a tennis bubble, a time-sharing unit within a multi-unit building, and a travel trailer (unless converted to a permanent onsite building). Excluded contents include automobiles and motorcycles (including dealer's stock, assembled or not) and goods in temporary possession (such as at a cleaner's).

Section III-Policies and Products Available Increased Cost of Compliance Coverage Covered ICC Claims Demolition

Demolition may be necessary in cases where damage is too severe to warrant elevation, flood-proofing, or relocation; or where the building is in such poor condition that it is not worth the investment to undertake any combination of the above activities. The property may be redeveloped (up to current codes and standards) after demolition is complete and the NFIP policy may be transferred to the new structure.

Section I-Introduction WYO Policies and the Private Insurance Role in the NFIP

Early in Reagan's presidency, the new Federal Insurance Administration (FIA) began formulating a new way to bring private companies back into flood insurance. In 1983, the FIA launched Write-Your-Own (WYO) Policies by which participating insurance companies could issue flood insurance on their own forms. With this arrangement, the company's name, not FEMA's, appears atop the declaration page, premiums are paid to the insurance company before being redirected to the NFIP, adjustors are hired by the insurance company, etc. While this approach did not eliminate NFIP direct insurance (purchased directly from FEMA), within five years WYO accounted for more than 90% of all flood insurance policies, creating a public-private partnership with a still unfolding mixture of public and private responsibilities. Details about WYO policies and the role of private insurance for flood damage will be provided later in this course.

Section III-Policies and Products Available Preferred Risk Policy; Types of Buildings Covered Preferred Risk Policy Extension Eligibility

Effective January 1, 2011, FEMA extended availability of the PRP for two years to buildings newly mapped from moderate-to-low-risk areas into high-risk areas, or SFHAs (zones beginning with the letter "A" or "V" on flood maps). The extension applies in areas remapped on or after October 1, 2008 [this date was chosen because it corresponded with an initiative to revise FIRMs that occurred on and after October 2008; many new maps were introduced as part of this initiative]. The extension was renewed, effective January 1, 2013. Buildings that meet the above requirements and have an uninterrupted PRP must also meet loss history requirements, as follows: two prior claims on the property, disaster relief payments for flood-related damage of $1,000 or more, or three losses of any amount makes the structure ineligible for a PRP. Beginning October 1, 2013, policy premiums on those given PRP extensions are scheduled to increase 20 percent each year (after the two years ends) as part of the premium rate revisions put in place by the Biggert-Waters Flood Insurance Reform Act of 2012. THE HFIAA, however, has limited increases to 18% annually on subsidized plans. It's unclear if those limits apply to PRP extensions. Current FEMA policies continue to anticipate 20% annual rate increases when PRP extensions expire. Provisions to offer permanent somewhat reduced rates to some of these properties are available in some cases.

Section III-Policies and Products Available Increased Cost of Compliance Coverage Covered ICC Claims Elevation

Elevation is the most common means of reducing a building's flood risk. The process consists of raising the building to or above the BFE. While NFIP policy only requires the lowest floor of the building to be raised to the BFE, some states and communities enforce a "freeboard" or DFE requirement that mandates that the building be raised above the BFE to meet the community's flood protection level.

Section II-Flood Maps and Zone Determinations Base Flood Elevation Zone Determination Undetermined Risk Areas

FEMA defines these as "areas with possible but undetermined flood hazards. No flood hazard analysis has been conducted. Flood insurance rates are commensurate with the uncertainty of the flood risk." The areas are similar to those which existed prior to the development of the FHBM or FIRM for that area and are subject to sudden rate changes where policies for that area are available. They are notated on FIRMs with the letter "D."

Section II-Flood Maps and Zone Determinations

FEMA produces two types of maps for rating flood insurance... a Flood Hazard Boundary Map (FHBM) and a Flood Insurance Rate Map (FIRM). The rates available for flood insurance on any given property are initially determined by the zone under which it's listed on a FHBM or FIRM.

Section III-Policies and Products Available Property Covered Loss Avoidance Measures

FEMA recognizes that reimbursement for losses is almost always less desirable (and usually more expensive) than simply preventing the loss. The NFIP wishes to encourage any and all measures that might prevent or mitigate losses and has included provisions in flood insurance to reimburse the insured for expenses incurred in such efforts. No deductible exists for these claims. Some of the covered expenses are... Sandbags and Supplies (including sand, plastic sheeting, and lumber, when constructing a temporary levee or other barrier) Pumps Expenses Incurred to Move Property to a Safer Location (outside the SFHA). Payment (for labor employed in these efforts (the insured and family members may be paid for labor at the federal minimum wage) Expenses are Covered up to $1,000 Per Measure (paid receipts are required for sandbags, supplies, truck rental, storage unit, etc.)

Section III-Policies and Products Available Damages Not Covered Single Peril Policy

Flood insurance offered through the NFIP is a single peril policy. This term strictly defines coverage as being only for losses directly resulting from flooding. No losses that are not directly caused by flooding, even if they occur during a flood, are covered. To be clear: a secondary loss that is a direct result of flooding is covered by the NFIP. If, for example, flooding causes a sewer line to back up into a home, the damage caused by the sewage is covered even if the sewage is not, in itself, a flood. However, land movement (other than the land erosion included in the definition of a flood) which might occur during, after, or even as a result of a flood is explicitly excluded as a separate peril and not covered by the NFIP. Once a loss is determined to be a result of flooding, a payout is provided up the limits of the policy, regardless of the total flood-related loss, and only for the portion of that loss caused the single peril of flooding. Details about how payouts are calculated will be presented later in this class.

Section III-Policies and Products Available Increased Cost of Compliance Coverage Covered ICC Claims Flood-Proofing

Flood-proofing applies only to non-residential buildings (except under extraordinary circumstances). For a building to be certified as flood-proof, it must be watertight below the BFE; the walls must be substantially impermeable to water and designed to resist the stresses imposed by floods. Flood-proofing techniques include installation of watertight shields for doors and windows; drainage collection systems, sump pumps, and check valves; reinforcement of walls to withstand floodwater pressures; use of sealants to reduce seepage through and around walls; and anchoring the building to resist flotation, collapse, and lateral movement.

Section I-Introduction Flood Insurance Down Through the Ages (until 1968)

Floods have provoked major human responses throughout recorded time. A variety of scholars (such as this one) have concluded that our modern calendar exists because, 5,000 years ago, Egyptians needed a way to manage risk by predicting and taking measures against the annual flooding of the Nile. Risk management and flood control have been associated ever since. Despite this long history, flood insurance, itself, has nonetheless been haphazard. For most of the history of the United States it was undertaken entirely by private companies. The first direct response to homeowners' losses by the U.S. government occurred in 1934 in the form of low-interest loans to flood victims. Government response to floods remained mainly focused on flood control and prevention measures (levees, etc.) until the Disaster Relief Act of 1950 provided a regular source of federal funds for floods or other disasters. It had limited application, was invoked only by Presidential response to specific, large-scale events, and was unfunded except by general income taxes. The Federal Flood Insurance Act of 1956 was the first attempt to make coverage available for all homeowners, but the lack of actuarial data resulted in delays then abandonment of the program. The U.S. government was seeking to respond to the problem flood insurance presents for private companies in that, compared to the risks of relatively frequent events such as fires (where there is ample data and statistical modeling) the risks of low-probability/high-loss events like floods are hard to calculate. In addition, the massive costs and compressed time of even a single event would require large reserves on the part of private insurers to remain solvent in the event of a widespread disaster. Meanwhile, property owners with more expensive and higher-risk properties tend to be the only ones to buy insurance while less-well-off people with fewer assets and those not at high risk do not. This process, known as "adverse selection," causes higher premiums for those who insure, which in turn forces still more customers from the market, causing ever-increasing premiums, until no one can afford to insure. As a result of these factors, during the 1950s and early 1960s whatever scarce flood insurance that had been available from private insurers ceased to exist. After Hurricane Betsy struck Louisiana in 1965, it became clear that, in the absence of private flood insurance, a comprehensive, reliable, and proactive national approach was required.

Section IV-General Rules Loss Settlement Co-Insurance Penalty in RCBAP

For condominiums only, a coinsurance provision can be enforced on the dwelling portion of a claim (not on contents) if coverage had not been purchased either at the limit or at least 80% of the value of the claim. In the case of a claim that exceeds 80% of purchased coverage (where maximum coverage was not purchased) the settlement will be reduced to reflect the percentage of required coverage purchased. Here are the steps for calculating coinsurance on a RCBAP policy, as laid out by FEMA... Step 1: Divide the actual amount of flood insurance carried on the condominium building at the time of loss by 80 percent of either its replacement cost or the maximum amount of insurance available for the building under the NFIP, whichever is less. Step 2: Multiply the amount of loss, before application of the deductible, by the figure determined in Step 1 above. Step 3: Subtract the deductible from the figure determined in Step 2 above. The policy will pay the amount determined in Step 3 above, or the amount of insurance carried, whichever is less.

Section III-Policies and Products Available Definitions Flood The Private Insurance Definition

For flood insurance, there's no definition more critical than what constitutes a flood. A flood is defined, for purposes of private insurance as, "an overflowing of water or mud onto land that is normally dry." Note that this definition makes no distinction between flowing water and flowing mud. The definition applies equally to a flood or "mudflow" but not to a "mudslide." The issue of mudflow vs. mudslide will be looked at more fully later in this class. Also note that this generally applied definition of a flood does not discriminate between floods with natural causes and those with non-natural causes such as dam breaks. It makes no distinction between overflows from streams, ponds or lakes, tidal or wind-blown overflows, or overflows as a result of the failure of mitigation systems such as levees. In other words, if water or mud flows into your home, it's a flood. For the purposes of private insurance, a flood is an excluded peril.

Section III-Policies and Products Available Property Covered Improvements and Betterments

For homeowners and businesses, coverage of a structure obviously includes any permanent improvements and betterments added during the coverage period. For those who rent, these improvements may also be covered. Contents policies in the NFIP include, as a standard provision, coverage for fixtures, alterations, installations, or additions to the dwelling or apartment in which the insured resides if they have been made or acquired solely at the tenant's expense. Payouts for improvements and betterments is limited to 10% of the limits of coverage purchased.

Section IV-General Rules Deductibles Higher Deductibles

Higher deductibles are available on NFIP policies for those who prefer them. Optional high deductibles reduce policy premiums. For example, a $5,000 deductible would reduce premiums by 25% (multiply rate by .75) If flood insurance is being purchased as mandatory for a loan, any deductible higher than the statutory minimum must receive the signed approval of the mortgage lender.

Section III-Policies and Products Available Definitions Elevated Buildings How the Definition is Applied to Different High-Risk Zones

In addition to its roles in mapping flood zones and offering flood insurance, the NFIP is charged with enforcing standards to make structures less prone to flooding and flood damage. When communities join the NFIP, they agree to abide by these standards, some of which apply to elevating structures in high-risk flood zones. Communities must require that all new construction and substantial improvements of residential structures within Zones A1-30, AE and AH Zones on the community's FIRM have the lowest floor (including basement) elevated to or above the Base Flood Elevation (BFE). Common elevation techniques include elevation on file, elevation on piles, piers or columns, and elevation on extended foundation walls such as on a crawl space. In areas designated as Zone A, the community must obtain, review, and reasonably utilize BFE data available from a Federal, State, or other source and use these data as criteria for requiring that new construction and substantial improvements of residential structures have the lowest floor (including basement) elevated to or above the BFE. All new construction and substantial improvement in Zones V1-30, VE, and also Zone V (if BFE data is available), must be elevated on pilings and columns so that the bottom of the lowest horizontal structural member of the lowest floor (excluding the pilings or columns) is elevated to or above the BFE. For residential structures in AO Zones, the lowest floor (including basement) must be elevated at least as high as the depth number specified in feet on the community's map, or at least two feet if no number is specified.

Section IV-General Rules Loss Settlement Replacement Cost Value (RCV)

In general, replacement cost is the highest available settlement amount for a valid claim. It's derived from a calculation of what it costs to restore what's lost or damaged. That is, it reflects what is required to repair or replace a damaged dwelling or its contents without deducting for depreciation. The following is drawn from the terms applied to a single-family home for the dwelling, only (not the contents). Only a principal one-family residence is eligible to receive this replacement cost value, meaning that, at the time of loss, the insured lived there at least 80 percent of the preceding year (or ownership period, if less than a year). Replacement cost is available if... The building was insured to at least 80 percent of its full replacement cost immediately before a loss occurs or the maximum amount of insurance was purchased. Replacement cost value is the lowest of these three amounts (after application of the deductible)... The replacement cost, with materials of like kind and quality and for like use or the necessary amount actually spent to repair or replace the damaged part of the dwelling for like use or the building limit of liability coverage. Similar terms and calculations are employed for condominium coverage (with an additional potential coinsurance payment) and for residential and condominium contents.

Section I-Introduction Homeowner Flood Insurance Affordability Act (HFIAA) Surcharge

In order to offset the losses from repealing parts of BW-12 and to ensure solvency of the NFIP, all policies (regardless of assessed flood risk) will be assessed a $25 annual surcharge for a primary residence and a $250 surcharge for other properties. The surcharge will be eliminated once annual increases on high-risk properties eliminate all subsidized rates.

Section I-Introduction Biggert-Waters Flood Insurance Reform Act

In recent years, strenuous concerns have been raised that the NFIP had become insolvent. Among the concerns are that premiums remain artificially low, maps don't accurately reflect risk or aren't recently updated, loopholes are widely used to avoid paying for the true level of risk or adopting mitigation measures, and flooding events are becoming more frequent and more severe than anticipated in the actuarial models. One article on this subject summed it up: "the National Flood Insurance Fund has never charged premiums high enough to build a reserve for catastrophic flooding. Indeed, Hurricane Katrina claims could be and were paid by the NFIP only with borrowed money, and in the aftermath of the flooding Congress was forced to increase the statutory cap on how much the NFIP could borrow from $1.5 billion to $20.775 billion. It is generally understood by Congress that the NFIP will never be able to repay this debt, which now stands at over $17,000,000,000." Repeated claims from the same claimant have also been criticized. As Craig Fugate (FEMA Administrator since May 2009) stated, for example, "The moral hazard of subsidizing [flood] risk is, we're going to rebuild right where we were, just the way it was, and we're going to get wiped out." The ability of the NFIP to respond to risk by raising premiums had also been restricted by Congress in the late 1980's; the Reagan Administration had attempted to more than double some premiums in order to enhance solvency and the U.S. House and Senate countered by limiting premium increases to a small amount annually. In July 2012, Congress passed the bipartisan Biggert-Waters Flood Insurance Reform Act (named for co-sponsors Judy Biggert, R-Illinois and Maxine Waters, D-California) by a wide margin. The law instituted profound changes during the five-year period it would be in effect. Structures outside high-risk zones were unaffected but those within the zones were almost all affected. Only intact primary residences in high flood risk areas that had been continuously insured since before flood maps were implemented would retain subsidized rates. Buildings that had been improved, sustained flooding, had been recently sold, were a second residence, or were used for commercial purposes would have rates rise by a maximum of 25% annually until they reflected true risk rates. Additionally, structures previously mapped outside high risk areas but since mapped into areas of higher flood risk would now be required to have flood insurance (a program to temporarily delay an increase in the premiums for these properties was included).

Section IV-General Rules Reduction and Reformation of Coverage

In the event that an insufficient premium payment is received to cover the insurance policy requested, the NFIP reserves the right to adjust the policy terms such that coverage will be maintained at limits provided at the premium level paid. If a claim is filed before it's determined that an insufficient premium payment was made, the full amount of policy coverage requested will be honored provided the remainder of the premium is paid within 30 days. In other words, the policy will be honored as if the full premium had been paid as long as the balance is paid within 30 days.

Section IV-General Rules No Binders

In traditional insurance, a client who purchases a policy is often provided a "binder," which is a temporary agreement between the insured and the insurer that a policy is in effect during the period it takes to process the application and initial payment of a premium. The NFIP does not offer, issue, accept, or recognize binders. It does, however, accept a copy of the Flood Insurance Application and proof of premium payment, or a copy of the declarations page as sufficient evidence of proof of purchase for a new policy to be honored. Similar documentation for the renewal of an existing policy is also sufficient for that policy to be honored.

Community Participation Eligible/Ineligible Buildings Eligible Structures

Most buildings are eligible for NFIP insurance if they are located in a community that participates in the NFIP and they have been constructed in compliance with community building requirements. However, buildings are only eligible for NFIP coverage if they fulfill certain conditions... Buildings must have two or more outside rigid walls and a fully secured roof and must be affixed to a permanent site. Buildings must be able to resist flotation, collapse, and lateral movement. Buildings must have at least 51 percent of the actual cash value, including machinery and equipment that are part of the structure, above ground level (the only exception to this requirement is if the lowest level of the building is at or above the Base Flood Elevation and it is below ground only because earth has been used as insulation material in conjunction with energy-efficient building techniques)

Section IV-General Rules One Building per Policy-No Blanket Coverage

Most insurance companies offer "blanket" policies; that is, a single policy that covers more than one type of property at the same location, the same kind of property at more than one location, or two or more kinds or property at two or more locations. As noted above, flood insurance is strictly offered on single structures, only (with appurtenances included, where appropriate). No blanket policies are allowed. If there is more than one kind of structure at the same location or the same kind of structure at different locations, each structure requires a separate and discrete policy. Additionally, as has also been noted throughout this class, no building can have more than one flood insurance policy issued through the NFIP. This is true regardless of who has purchased the policy or what form the policy takes. If there are multiple policies on the same structure, they should be reconciled and combined or have any policies other than the principal one canceled.

Section III-Policies and Products Available Mudslides and Mudflows Insurance Coverage for Mudflows and Mudslides

Neither mudslides nor mudflows are covered by standard private P&C insurance policies. Furthermore, since mudflows are defined as a flood, no additional coverages in a standard P&C policy allow mudflows to be added to the policy. They are, instead, covered by the NFIP. Mudslides, however, can be added to a privately-issued P&C policy for a relatively small amount. Almost all such policies allow for an endorsement to be added to cover the peril of "earth movements." Since a mudslide is considered an earth movement, it becomes a covered peril once this endorsement has been added to the private policy. The NFIP has no provision to cover earth movements and therefore does not cover mudslides; as noted above, the NFIP covers mudflows and no additional coverage is required to add the peril of a mudflow to standard flood insurance.

Section IV-General Rules Loss Settlement

Once a claim has been determined to be valid and adjusted, there are three methods to settle a loss... Replacement Cost Actual Cash Value Special Loss Settlement

Community Participation Regular Program Defined

Once a detailed engineering study is completed for the community and a FIRM issued, participating communities are brought into the Regular Program of the NFIP. The community is required to adopt or amend its floodplain management regulations to incorporate the new flood data on the FIRM. Under the Regular Program, higher amounts of flood insurance coverage are provided than under the Emergency Program and new construction is charged actuarial rates for flood insurance that fully reflect the building's risk of flooding. Some communities are brought into the regular program as minimally flood-prone communities. This is available only if the community has been found... To have only a minimal flood hazard and limited potential for floodplain development; or If no readily identifiable source of flooding or only a small flood hazard has been identified within the community, it will be classified as a No Special Flood Hazard Area (NSFHA) Community. In the first instance, communities are issued a FIRM with special flood hazard areas designated but no BFEs provided. NSFHA communities do not have a FIRM and are regarded as all Zone X for flood insurance purposes (see below for explanation of Zones). NSFHA communities are not required to adopt floodplain management ordinances.

Section III-Policies and Products Available Property Covered Additional Coverage

One of the measures for maintaining affordability of flood insurance is to set a strict limit on federal coverage available for either the structure or its contents. No additional coverages may be purchased on the same structure through the NFIP. Private insurers do, however, make additional coverage available. Any property and contents with a value significantly above the limits set by the NFIP might consider purchasing Excess Flood Insurance (EFI) to provide an extra measure of protection. As noted above, the NFIP offers up to $250,000 structural coverage and $100,000 to cover contents for most residential properties and $500,000 with an option of $500,000 for the contents of commercial properties. Private insurers have historically been hesitant to offer these basic levels of coverage. The main role of private underwriters in flood insurance has instead been to offer EFI policies. It's important to clarify how EFI policies operate. They are only applicable in the following circumstances... Maximum coverage through the NFIP has been purchased and maintained. A valid claim has been filed that exceeds the NFIP limits. Naturally, EFI only pays for losses in excess of those paid by the NFIP. EFI policies are widely available. Their provisions and costs vary depending on the issuer and circumstances of purchase. They are regulated by state insurance commissions; no elements of EFI are regulated or controlled by FEMA or the NFIP. As an insurance producer who offers NFIP coverage, however, informing customers of the availability and terms of EFI is extraordinarily useful and performs a valuable service to those who may be vulnerable to additional losses. Another form of excess coverage is known as "Difference in Conditions" (DIC) insurance. This form of coverage is available only through Surplus Lines carriers to commercial clients. It carries a very high deductible so may work like EFI whereby it covers losses above NFIP limits (i.e., the deductible would be equal to the NFIP limit). Some businesses may rely only on DIC insurance in lieu of NFIP coverage, taking on the high deductible in the event of a flood. The premiums tend to be significantly higher than those for EFI. DIC insurance also generally covers lost income, which is not covered in NFIP policies. DIC policies are generally written to apply to the specific insured so its provisions must be reviewed carefully (for example, are only floods from bodies of water overflowing covered but not surface water flooding)

Section III-Policies and Products Available Property Not Covered Finished Items in Basements/Enclosures

One of the most common misconceptions about flood insurance is that it does not cover basements. Rates for plans that include basements and enclosures cost a little more, but most of the functional elements of a basement or enclosure are, in fact, available to be covered by flood insurance. Some exclusions apply to basements and enclosures that do not apply to aboveground parts of the structure. Among the items not covered by flood insurance if they are located below ground level are... Paneling, Bookcases, and Window Treatments (such as curtains and blinds) Carpeting, Area Carpets (and other floor coverings such as tile) Drywall for Walls and Ceilings (below lowest elevated floor) Walls and Ceilings (not made of drywall) Personal Property (such as clothing, electronic equipment, kitchen supplies, and furniture)

Section III-Policies and Products Available Property Not Covered

One of the ways to keep flood insurance coverage affordable yet responsive is to exclude coverage for losses considered less critical. A full list of exclusions can be found in the Standard Dwelling Form. Some of these exclusions include vehicles, currency, precious metals, and valuable papers such as stock certificates, as well as damage caused by moisture, mildew, or mold that was pre-existing or which resulted from the flood but could have been avoided by reasonable efforts on the part of the property owner. Additionally, property and belongings outside of a building and in structures below ground level may not be covered nor is loss of use.

Community Participation Participating Communities

Participation in the National Flood Insurance Program (NFIP) is voluntary. To join, the community must... Complete an application, adopt a resolution of intent to participate and cooperate with FEMA, adopt and submit a floodplain management ordinance that meets or exceeds the minimum NFIP criteria. The floodplain management ordinance must also adopt any Flood Insurance Rate Map (FIRM) or Flood Hazard Boundary Map (FHBM) for the community. Once enrolled... The federal government makes flood insurance available throughout participating communities. States are encouraged to insure and regulate state-owned properties under the NFIP.

Section III-Policies and Products Available Definitions Basement/Enclosure

Rates and coverages for flood insurance have specific provisions regarding parts of a structure below the structure's base elevation. FEMA defines such portions of a structure as either a basement or enclosure, as follows... Basement: 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: That portion of an elevated building below the lowest elevated floor that is either partially or fully shut in by rigid walls.

Rating and Handling Claims Section V-Rating Information Needed for Rating

Rating for NFIP flood insurance is a complicated process, affected by numerous factors including location, date, community provisions, elevation, waivers, and so on. However, since all NFIP policies are underwritten through the national program, regardless of the insurer handling the actual policy, rating with regard to flood insurance is mainly a matter of collecting the appropriate information. Among the information needed is... Community Participation in NFIP Pre-FIRM or Post-FIRM Zone Elevation Property Specifics Coverage Required or Selected Documentation Required (Certificates, photos, construction history, flooding and claims/disaster relief history)

Section III-Policies and Products Available Increased Cost of Compliance Coverage Covered ICC Claims Relocation

Relocation involves moving the entire building to another location on the same lot or to another lot, usually outside the floodplain. Relocation can offer the greatest protection from future flooding; however, if the new location is still within the SFHA, the building must be NFIP-compliant, meaning it must be elevated or floodproofed (if non-residential).

Section I-Introduction Recent Changes in the NFIP

The 2012 law has become highly controversial. Since many estimate that premiums had been maintained at 20-50% of true risk rates, the increases mandated in Biggert-Waters were substantial. A firestorm of protest erupted in response to announced rate increases. As a result, Congress began seeking ways to change or delay the law. The January 2014 Budget Bill delayed enforcement for nine months. Another bill introduced in early 2014 would have delayed enforcement until updated flood risk maps are instituted nationwide, a process likely to outlast the life of the Biggert-Waters Flood Insurance Reform Act. As a side note, one of the law's co-sponsors, Judy Biggert, lost her seat in the November 2012 election, but her loss to a Democrat was not likely related to reactions to this legislation. Her absence, however, removed the single most notable Republican defender of the law. On March 21, 2014, President Obama signed the Homeowner Flood Insurance Affordability Act of 2014.

Section I-Introduction Failure to Renew NFIP in December 2017

The Biggert-Waters Act was amended in 2014 with the passage of the Homeowners Flood Insurance Affordability Act, but expired December 5, 2017. Congress failed to enact new enabling legislation to extend the program past December 5 or to institute any changes or reforms (such as H.R.2875 - the National Flood Insurance Program Administrative Reform Act proposed in July 2017 but never passed). The House passed H.R. 2874, the 21st Century Flood Reform Act, on November 14, 2017, with a vote of 237-189, but it has not yet passed the Senate. If passed in its current form, H.R. 2874 would authorize the NFIP until September 30, 2022, making changes related to premiums and surcharges, affordability, increasing participation, the role of private insurance, treatment of multiple loss properties, and some provisions related to floodplain mapping and mitigation. Since this legislation may change considerably before passage and may never, in fact, pass, the specifics are not yet worth exploring. Meanwhile, in order to avoid abrupt termination of the NFIP on December 5, 2017, Congress passed a continuing resolution that allowed the program to continue to operate under the Biggert-Waters provisions through February 8, 2018, extended by a second resolution to March 23, 2018, and then by legislation extended the program, as is, through July 23, 2018. According to FEMA, "Congress must now reauthorize the NFIP by no later than 11:59 pm on July 23, 2018."

Community Participation Community Rating System

The Community Rating System (CRS) was initiated in 1990 by the NFIP to reward communities that voluntarily exceed minimal standards for flood prevention and protection of structures. It is a voluntary incentive program aimed at educing flood damage to insurable property, strengthening and supporting the insurance aspects of the NFIP and encouraging a comprehensive approach to floodplain management. Of the more than 21,000 communities that participate in the NFIP, about 1,000 are enrolled in the CRS (mainly in areas that have suffered repeated flooding). The CRS offers lower premiums to communities in the program with different savings available based on a 1-10 classification system (500 points per category such that Class 10 is 0-499 points and Class 1 is over 4,500 points). For CRS participating communities, flood insurance premium rates are discounted in increments of 5% (i.e., a Class 1 community would receive a 45% premium discount, while a Class 9 community would receive a 5% discount), A Class 10 is not participating in the CRS and receives no discount. The CRS classes for local communities are based on 18 creditable activities, organized under four categories Public Information, Mapping and Regulations, Flood Damage Reduction, and Flood Preparedness. To supplement and support the CRS, the NFIP offers posters that provide simplified descriptions of the CRS, a 9-minute narrated PowerPoint presentation suitable for viewers with little or no familiarity with the CRS, and a series of Webinars targeted to new communities not yet participating in the CRS or to local government staff with some CRS experience. The NFIP began a revision process for the CRS in 2011 which culminated in new standards and a new CRS manual, issued in 2013. Finally, in 2013 the CRS unveiled the "High Water Mark Initiative" to award points for posting high water marks in public places and maps and for posting photographs of past floods on their websites. The NFIP also initiated the "CRS Award for Excellence" to recognize an individual who has provided leadership in the area of alerting residents to the dangers of flooding and promoting the purchase of flood insurance through the NFIP. The first award was presented in 2014.

Section III-Policies and Products Available Flood Insurance Policy Forms Dwelling Policy-Types of Buildings Covered

The Dwelling Policy Form may be issued in participating communities to homeowners, residential renters and condominium unit owners, and owners of residential buildings containing two to four units. The Dwelling Policy provides building and/or contents coverage for... Detached, Single-Family, Non-Condominium Residences (with "incidental occupancy" limited to less than 50% of the total floor area) 2-to-4-Family, Non-Condominium Buildings (with "incidental occupancy" limited to less than 25% of the total floor area) Dwelling Units in Residential Condominium Building Residential Townhouses/Rowhouses Manufactured/Mobile Homes

Community Participation Emergency Program Defined

The Emergency Program is the initial phase of a community's participation in the NFIP, undertaken if no flood hazard information is available or the community has a Flood Hazard Boundary Map (FHBM) but no Flood Insurance Rate Map (FIRM). A limited amount of flood insurance coverage at less than actuarial rates is available for all residents of the community. The community is required to adopt minimum floodplain management standards to control future use of its floodplains. Communities are converted to the Regular Program upon completion of a Flood Insurance Study and issuance of a FIRM or a determination that the community has no special flood areas. Under the Regular Program, more comprehensive floodplain management requirements are required of the community and higher amounts of flood insurance coverage are provided.

Section II-Flood Maps and Zone Determinations Flood Hazard Boundary Map (FHBM)

The FHBM is generally an initial flood hazard identification map used for Emergency Program communities. When a community transitions to the Regular Program, it usually begins to employ a FIRM, which has more detail and higher technical requirements. Some Regular Program communities may use a map originally published as an FHBM, in which case a letter will accompany the map describing it as an FHBM being used as a FIRM.

Section II-Flood Maps and Zone Determinations Flood Insurance Rate Map (FIRM)

The FIRM is an official document created and maintained by the NFIP in consultation and collaboration with federal, state, tribal and local partners. Once adopted by a community, it has the force of law as would any other zoning map. There are nearly 100,000 FIRMs currently in force. FIRMs include statistical information such as data for river flow, storm tides, hydrologic/hydraulic analyses and rainfall and topographic surveys. FEMA uses the best available technical data to create the flood hazard maps that outline a community's different flood risk areas. Additionally, a property owner who believes a location is wrongly mapped into a SFHA may submit a request to FEMA for a Letter of Map Change (LOMC). A LOMC reflects an official revision/amendment to an effective FIRM. If the LOMC request is granted, property owners may be eligible for lower flood insurance premiums or the option to not purchase flood insurance. It is important to emphasize that a FIRM can be revised at any time. The NFIP began a program in 2003 to systematically update the FIRMs. FEMA has a search feature to determine when your area is due to have the FIRM updated. The HFIAA reaffirmed the importance of updating and maintaining accurate FIRMs and created a Technical Mapping Advisory Council intended to improve the process. FEMA makes all FIRMs available online through the FEMA Flood Map Service Center (MSC). In mid-2014, FEMA launched an enhanced MSC website with improved address search capabilities. All maps are provided free of charge.

Section III-Policies and Products Available Flood Insurance Policy Forms General Property Policy; Types of Buildings Covered

The General Property Policy Form may be issued to owners or lessees of non-residential buildings or units, or residential condominium buildings that are uninsurable under the RCBAP. The General Property Policy provides building and/or contents coverage for these and similar "other residential" risks... Hotel or Motel (with normal guest occupancy of 6 months or more) Apartment Building Residential Cooperative Building Dormitory Assisted-Living Facility The General Property Policy provides building and/or contents coverage for these non-residential risks... Shop, Restaurant, Mercantile, Retail or Other Business and Factory, Warehouse, or Industrial Facility, including... Stock, Inventory (or other commercial contents) Grain Bin, Silo (or other farm building or agricultural processing facility) Factory or Warehouse Poolhouse, Clubhouse (or other recreational building) House of Worship or School Hotel or Motel (with normal guest occupancy of less than 6 months or licensed bed-and-breakfast inn) Nursing Home Non-Residential Condominium (or condominium building with less than 75% of its total floor area in residential use) Detached Garage or Tool Shed

Section I-Introduction Homeowner Flood Insurance Affordability Act (HFIAA) Mapping

The Homeowner Flood Insurance Affordability Act creates a Technical Mapping Advisory Council (TMAC) to review the new national flood mapping program, to certify that FEMA is utilizing "technically credible" data and mapping approaches, and report its findings to Congress. It requires mapping to take into account flood protection systems, natural flood abatement features (e.g. wetlands), and to incorporate input from local communities in creation of FIRMs to maintain fair rates. The law also lifts the $250,000 cap when reimbursing homeowners who file successful map appeals based on a scientific or technical errors.

Section II-Flood Maps and Zone Determinations Base Flood Elevation Zone Determination Low and Moderate-Risk Zones

The NFIP defines moderate-risk zones as any area between a 0.2% (500-year flood) and the 1% (100-year flood) risk that qualifies an area as a high-risk zone. A moderate flood risk zone may also be an otherwise high-risk zone protected by a levee or other mitigation effort or which is subject only to shallow flooding (average depths less than 1 foot) or drainage areas less than 1 sq. mile. Any area determined to have less than a 0.2% chance (500-year flood) of flooding in any given year is termed a "low risk" zone. Until 1985, moderate-risk zones were notated with the letter "B" and low-risk zones with the letter "C." In an attempt to simplify the maps, all low-to-moderate zones are now notated as "X" zones, with moderate-risk areas "shaded" and low-risk areas "unshaded." Older maps may still have the "B" and "C" notations. There is no difference in rates regardless of which letter (C or unshaded X, for example) is used to indicate the risk level.

Section IV-General Rules Building and Contents Coverage Purchased Separately

The NFIP is organized such that contents coverage is always purchased separately and a separate deductible is applied. In any situation where flood insurance is mandatory, only insurance on the structure itself is required. Contents coverage is always optional. Similarly, where flood insurance is not mandatory, contents coverage may be purchased without any need to purchase coverage for the structure. This is often utilized by renters and at times by condominium owners. Items determined or considered to be personal property cannot be paid under building coverage. Contents coverage cannot be used for items permanently installed and therefore included under building coverage. In order to qualify for coverage under the NFIP, contents must be owned by the insured or family members of the insured's household, or at the insured's option, within the limits of liability of the policy, by the insured's guests or servants. Contents are covered while stored in the dwelling or in another fully enclosed building at the described location. Flotation of contents out of a building that has fewer than four rigid walls voids coverage.

Section IV-General Rules Statutory Coverage Limits Basic vs. Additional Coverage

The NFIP is organized to offer a different rate for "basic" and "additional" coverage. Basic coverage for residential properties is generally the first $60,000 of coverage, with the additional $190,000 of coverage offered at a different rate. The first $175,000 of non-residential and commercial coverage is classified as "basic," with an additional $325,000 of coverage available at a different rate.

Section I-Introduction NFIP Background

The NFIP is the outgrowth of centuries of effort on the part of mankind to anticipate and respond to the dangers of flooding. Here is a brief history of the background that led up to the creation of the NFIP in 1968.

Section III-Policies and Products Available Flood Insurance Policy Forms

The NFIP offers three Standard Flood Insurance Policy forms Dwelling, General Property, and Residential Condominium Building Association (RCBAP). These forms provide policyholders with a description of their coverage and other important coverage information. While the three forms are similar in many ways, there are differences as well. For example, the General Property Form does not provide coverage for contents in any building other than the insured building and the RCBAP Form contains a coinsurance clause, which provides for a pro rata reduction in the building claim payment if the building is not insured to 80 percent of its replacement value.

Section IV-General Rules Cancellations

The NFIP restricts conditions under which a policy may be canceled before the expiration of its term, with a prorated return of the premium. A simple desire to cancel or to receive a refund is not considered sufficient. A cancellation and refund may be issued if no claim has been paid or is pending under the policy and any of these circumstances apply... The policyholder sold the property and no longer has an insurable interest in it. The policy can also be transferred to the new owner without interruption instead of being canceled with an appropriate financial arrangement between the seller and buyer rather than cancellation and a refund. The property was formerly in an SFHA but due to a new or revised map or as a result of an appeal and letter of amendment, the property is no longer in an SFHA. The policy can also be modified to reflect the new underwriting conditions and a partial refund issued to reflect the new rate while the policy remains in force or, in some cases, the full premium for the current policy term, only, may be refunded if it is determined that the property had been incorrectly placed in an SFHA. The policyholder has extinguished the insured mortgage debt and is no longer required by the mortgagee to maintain the coverage, in which case only the prorated balance of the premium paid minus fees will be refunded.

Section I-Introduction The NFIP

The National Flood Insurance Act of 1968 created the National Flood Insurance Program (NFIP). The intent was to provide every American flood insurance "on reasonable terms and conditions...with large scale participation of the Federal Government and carried out to the maximum extent practicable by the private insurance industry." The NFIP has 4 components... Risk identification/Assessment: Mapping of flood prone areas. Risk mitigation: Regulations that communities must adopt and enforce before high-risk areas can participate in the NFIP. Insurance: Federally supported flood insurance in communities that have joined the program. Subsidization (and attrition): New properties would be insured at actuarial levels; existing properties (at the time a map of the area is adopted) would be subsidized until such time as the structure sustained more than 50% damage by flooding; then it must be relocated or reconstructed in compliance with current regulations. It was the combination of risk identification, risk mitigation, and attrition - along with restrictions on the scope of insured losses covered by the flood insurance program - that was anticipated to provide this new government insurance program, in contrast to past private flood insurance offerings, with a chance to succeed.

Section III-Policies and Products Available Flood Insurance Policy Forms Residential Condominium Building Association Policy; Types of Buildings Covered

The RCBAP Form may be issued to condominium associations to insure eligible residential condominium buildings. In participating NFIP Regular Program communities only (other policies are also available in Emergency Program communities), it provides building coverage and, if desired, coverage of commonly owned contents for residential condominium buildings with 75% or more of its total floor area in residential use.

Section III-Policies and Products Available Property Covered Debris Removal

The aftermath of a flood can leave behind onerous clean-up tasks, including the removal of "muck" left by receding waters and the debris of destroyed or damaged items as well as tree limbs, etc. Standard flood insurance policies cover debris removal only within a covered structure. The land outside the structure, any below-ground portions, or any other area not otherwise considered the main covered structure is not included in the debris removal provision. Any possessions which were within the covered structure prior to the flood, however, and are now outside the structure are covered and the expense of their removal is included under debris removal for the structure, itself. Similar to loss avoidance measures,the insured and family members may be paid for labor at the federal minimum wage when engaged in debris removal. Other related costs are compensated based on valid receipts. It should be noted that communities, states, and the federal government often provide aggressive assistance with regard to debris removal over and above the debris removal covered by the NFIP.

Section II-Flood Maps and Zone Determinations Flood Insurance Rate Map (FIRM) Special Flood Hazard Area Defined

The area projected to be covered by a "base flood" in an FHBM or FIRM is termed a Special Flood Hazard Area (SFHA). Another term for this area can be "floodplain" and it is the customary boundary for the application of mandatory floodplain management guidelines. The SFHA includes Zones A, AO, AH, A1-30, AE, A99, AR, AR/A1-30, AR/AE, AR/AO, AR/AH, AR/A, VO, V1-30, VE, and V. All properties located in an SFHA must obtain flood insurance if the structure has a federally-insured or regulated mortgage, if it was damaged in a prior flood and received any form of federal assistance, or if it is covered by any flood management or mitigation plan or other program or lender's requirements.

Rating and Handling Claims Section V-Rating

The following methods are some of those used for rating... Manual - Using the rate tables provided in the NFIP Flood Insurance Manual. Alternative - Used when a building is Pre-FIRM, the FIRM zone is unknown, and the community in which the building is located has no V Zones. Provisional - Used for placing flood coverage prior to the receipt of an Elevation Certificate (EC). It is expected that an EC will be secured and standard rating completed within 60 days of the Policy Effective Date. Submit for Rating - Used to rate a building for which no risk rate is published in the NFIP Flood Insurance Manual. The NFIP manual lists several other rating methods for specialized situations.

Section IV-General Rules Statutory Coverage Limits

The limits set by the NFIP for flood insurance coverage are... $250,000 for residential property structures and $100,000 for personal contents within residences. $500,000 for non-residential structures and $500,000 for contents within non-residential structures, including stock, inventory, or other commercial contents. These limits apply to communities in the Regular Program, only. While in the Emergency Program, limits are significantly lower ($35,000 for residential structures and $100,000 for non-residential structures). These overall limits reflect both "basic" and "additional" coverage, which are provided at slightly different rates (see "Rating", below). Current NFIP limits were most recently set on March 1, 1995 and have not been raised since. Although the amounts appear low (given that the average home sold for $158,700 in 1995 and for $313,600 in 2007), it should be noted that sale prices for homes include land (which may account for over half the sale price) and market conditions, while flood insurance covers only the actual construction or repair costs for the structure only, and then only for the portion subjected to flood damage. As a point of reference, FEMA estimates that from 2008 to 2012, the average flood claim was less than $42,000. This, of course, is an average and does not reflect how many claims would have been greater than the statutory coverage limits had a higher limit been available. A single structure may not have more than a single NFIP policy. In other words, an attempt to increase coverage limits to $500,000 for a residence by having a second NFIP policy is not allowed. Even if the two policies combined do not exceed coverage limits or if one is a group policy and the other a personal policy, only one policy can cover a structure and any other policies must be terminated. For the RCBAP program, only, the limits correspond to those set for residential properties multiplied by the number of units in the condominium association. For example, a 10-unit condominium would be eligible for coverage up to $2,500,000 (10 x $250,000).

Section I-Introduction Homeowner Flood Insurance Affordability Act (HFIAA) Refunds

The new law mandates refunds of excess premiums some policyholders were charged pursuant to BW-12. Policyholders in high-risk areas who were required to pay their full-risk rate (if it's higher than previously set subsidized rates) after purchasing a new flood insurance policy on or after July 6, 2012 or policyholders who renewed their policy after the Homeowner Flood Insurance Affordability Act was enacted on March 21, 2014 and whose premium increased more than 18% will receive prompt refunds. Other policyholders who don't fall under the exemptions, listed above, may receive refunds after a six-to-eight month window during which FEMA will work with the WYO insurers to set up rate review and refund procedures. Policyholders who saw usual, annual rate increases in 2013 or 2014, or policyholders who paid the 5% fee, as required by BW-12, for the NFIP Reserve Fund, will only see a refund if their premium renewal was after March 21, 2014 and their total premium, including the reserve fund, exceeded 18%. Details are provided in a Refund Fact Sheet published on FEMA's website.

Section I-Introduction Homeowner Flood Insurance Affordability Act (HFIAA) Flood Insurance Advocate

The new law requires FEMA to designate a Flood Insurance Advocate to advocate for the fair treatment of NFIP policy holders. The Advocate will educate property owners and policyholders on individual flood risks; flood mitigation; measures to reduce flood insurance rates through effective mitigation; the flood insurance rate map review and amendment process; and any changes in the flood insurance program as a result of any newly enacted laws. The goal is to ensure accuracy, assist policyholders in maximizing protection and minimizing cost, respond to concerns about flood insurance rate map changes, and coordinate outreach and education.

Section I-Introduction Homeowner Flood Insurance Affordability Act (HFIAA) Premium Rates for Subsidized Policies

The new law requires gradual rate increases (minimum 5%, maximum 18%) to properties now receiving artificially low (or subsidized) rates instead of immediate increases to full-risk rates required under BW-12. Properties not covered by these limits (and still affected by BW-12) are older non-primary residences insured with subsidized rates, severe repetitive loss properties insured with subsidized rates, and buildings that have been substantially damaged or improved built before the local adoption of a Flood Insurance Rate Map (FIRM).

Section III-Policies and Products Available Increased Cost of Compliance Coverage Overview

The original legislation that created the NFIP in 1968 (as amended in 1973) included provisions to reimburse owners who incurred expenses after a flood that had been mandated by a local flood mitigation plan or ordinance. This coverage, termed Increased Cost of Compliance (ICC), has been revised over the years. It is offered for a small additional fee to standard plans and only operates under certain conditions. If a home or business is damaged by a flood, specific building requirements intended to reduce future flood damage may be imposed by the participating community during repair or rebuilding. Since Hurricane Katrina, communities are increasingly applying strict repair and rebuilding standards and flood prevention or mitigation has become far more widespread and encouraged. Through ICC coverage, flood insurance policyholders in SFHAs are eligible for up to $30,000 to help pay the costs of bringing a home or business into compliance with the community's floodplain ordinance. ICC claims are filed and adjusted separately from the original claim for a flood loss. There is no deductible for ICC coverage. ICC claims are only paid on flood-damaged homes and businesses and can only be used to pay for the costs of meeting the floodplain management ordinance in that community. ICC claims are available if the structure has sustained "substantial" or "repetitive" damage, either... Requiring repairs that cost 50 percent or more of the building's pre-damage market value or two paid flood insurance claims within 10 years (in a community that has adopted a repetitive loss provision in its local floodplain management ordinance) for which the cost of repairing the flood damage averaged at least 25 percent of its market value at the time of each flood. In addition to funds available through ICC coverage, some states have initiated public-private partnerships to encourage and subsidize flood mitigation efforts for homes that are being repaired or rebuilt after a flood. A program that was formerly available through the NFIP to award grants to properties that had suffered repetitive flood losses in order to encourage flood mitigation efforts on those properties was ended by BW-12. In its place, FEMA administers a Hazard Mitigation Assistance Unified Guidance program that provides grants to governmental or nonprofit entities to pursue flood mitigation efforts for affected communities. In other words, the federal government does not give direct grants to individual homeowners and businesses but financially supports community-wide efforts. Although the NFIP has no direct role in these efforts, as an insurance producer it is useful to be aware of these community-wide opportunities for a client faced with increased costs of compliance that might exceed the limits of coverage available with flood insurance.

Section IV-General Rules Policy Term and Grace Period

The standard term for an NFIP policy is one year. If no renewal premium is received within one year of the effective date for that term, the policy expires at 12:01 a.m. on the first day following the term. There is, however, a standard grace period. Under most circumstances, coverage remains in force for 30 days after the expiration of the policy and claims for losses that occur during the period are honored, provided that the full renewal premium is received within 30 days of the policy expiration date. Coverage also remains in force for the benefit of any mortgagee for 30 days after the mortgagee is notified of the cancellation or expiration. The lender is responsible for determining if failure to renew the policy after this 30-day grace period constitutes violation of mandatory provisions of the NFIP.

Section IV-General Rules Waiting Period/Effective Date of Policy

There are no restrictions on when a flood insurance policy may be purchased through the NFIP. A policy may be purchased even if a property is at that moment heavily flooded or if it's under a warning that flooding may be imminent. The policy will not, of course, cover any previous floods that continue to affect the property nor will it take effect immediately. Under normal circumstances, there is a 30-day waiting period from the time of purchase of NFIP insurance to the effective date of a new policy. The policy is eligible for a claim as of 12:01 a.m., local time, on the 30th calendar day after the application date and payment of a premium. There are three exceptions to this 30-day waiting period... Flood insurance purchased in order to initiate, increase, extend or renew a loan becomes effective at the time of loan closing. Flood insurance purchased upon notification by a lender that proof of mandatory coverage is lacking becomes effective upon the completion of an application and the payment of a premium. Flood insurance purchased within 13 months of the adoption of a new or revised FHBM or FIRM that shows the property to be in an SFHA (when it was not formerly but is now in an SFHA) becomes effective at 12:01 a.m., local time, following the day after the application date and the presentment of premium. There is no waiting period for a policy renewal, even if the renewal involves an increased level of coverage. The increase takes effect, however, only in the new policy term, not at the time of purchase. The same applies for changes to deductibles, etc.

Section II-Flood Maps and Zone Determinations Base Flood Elevation Zone Determination High-Risk Zones

There are two primary types of high-risk flood zones as recorded on a FIRM: A and V. Zone "A" is a reflection of the original high-medium-low system (A,B,C) and is currently used where standing water has a 1% chance to inundate an area in any given year. The "V" category was added to reflect the additional damage done by water that moves at a higher velocity, for example in coastal areas. Within the general "A" and "V" zones are numerous ways to categorize the way the rating was obtained or the type of risk being represented. For example, "AO" means "Areas subject to inundation by 1-percent-annual-chance shallow flooding (usually sheet flow on sloping terrain) where average depths are between one and three feet," "AR" means an area in the process of enhancing base flood protection, "A-99" means s a zone that has been improved and will soon have enhanced protection from a levee or other flood mitigation technologies, and so on. Zone "VE" denotes a greater risk from wave damage than in a zone "V."

Section I-Introduction Homeowner Flood Insurance Affordability Act (HFIAA)

This law repeals some provisions of the Biggert-Waters Flood Insurance Reform Act (BW-12) and modifies others. The seven areas that comprise the overall legislation are... Recalculation of Premiums for Subsidized Policies Refunds for Many who Recently Paid Increased Rates A Surcharge on All NFIP Policies Liberalized Grandfathering Provisions A New Protocol for Creation of Flood Insurance Rate Maps Creation of a Flood Insurance Advocate Program; and Affordability Measures. The new law lowers the recent rate increases on some policies, prevents some future rate increases, and implements a surcharge on all policyholders. The Act also repeals certain rate increases that had already gone into effect and provides for refunds to those policyholders. Finally, the Act authorizes additional resources for the National Academy of Sciences to complete an affordability study.

Section II-Flood Maps and Zone Determinations Base Flood Elevation Zone Determination A Hundred-Year Flood

This principal determinant for placement in a zone is the "base flood elevation" (BFE). A base flood is a flood with a 1% chance of occurring in any given year. This concept is termed a "hundred-year flood." No prediction of time is implied by this term. An area that flooded in any given year has exactly the same chance for flooding later in the same year or in successive years. The occurrence of a "hundred-year flood" should not suggest in any way that the event is unlikely to recur for 100 years. It is purely an assessment of current and ongoing risk.

Section IV-General Rules Property Value Determination for Selecting Coverage Amount

When deciding how much coverage is either needed (for a mandatory policy) or desired, it is useful to establish the ''insurable value'' of a structure. The NFIP does not insure land; therefore, land values should not be included in this calculation. The valuation also is not based on market conditions but on the cost of repair or replacement of the covered structure. An NFIP policy will not cover an amount exceeding the ''insurable value'' of the structure. Unlike the valuation used to underwrite most other hazard insurance policies, the insurable value of improved real estate for flood insurance purposes also includes the repair or replacement cost of the foundation and supporting structures. It is very important to calculate the correct insurable value of the property; otherwise, a lender might inadvertently require the borrower to purchase too much or too little flood insurance coverage. For example, if the lender fails to exclude the value of the land when determining the insurable value of the improved real estate, the borrower will be asked to purchase coverage that exceeds the amount the NFIP will pay in the event of a loss. These valuations are relevant only for coverage of the structure. Contents coverage is always optional and coverage amounts are set based on the judgment and preferences of the owner up to the limits allowed by the NFIP.

Section I-Introduction A Brief History of FEMA & the NFIP

When it was created in 1968, the NFIP was placed under HUD (Housing and Urban Development). The program became a component of FEMA when that federal agency was created in 1979. FEMA in turn became a part of the Department of Homeland Security in 2003. Changes to the NFIP over the years include a 1973 requirement for structures in high-risk zones to have flood insurance whenever receiving federally insured loans (though no mechanism for enforcement was created until the National Flood Insurance Reform Act [NFIRA] of 1994). Despite these laws, about 25 percent of properties required to have Flood Insurance do not. The 2004 FIRA attempted to restrict claims on structures suffering repeated losses (which amount to about ¼ of all claims) through a pilot program that has not yet been extended to all policies. By some standards, the NFIP is a signature achievement. Before the NFIP, there was almost no mapping of flood prone areas; therefore, actuarial data was non-existent. Now, mapping is widely available and relied on by lending and insuring institutions. Over 20,000 communities have joined the program, resulting in enhanced in flood mitigation efforts and improved building codes to reduce losses when floods occur. Nearly every American has access to some form of flood insurance. By the end of 2012, FEMA held 5.6 million policies, accruing $3.6 billion in annual premiums, covering $1.25 trillion in assets. By other standards, the NFIP might be considered a profound failure. Although having over 5 million structures insured would seem like a large number, a majority of structures in high-risk flood areas remain uninsured for flooding. In some regions (like the Northeast and Midwest), as few as 15% of high-risk structures are insured. (Congressional Research Service, February 2013. Attrition of subsidized loans from the program has been far slower than envisioned and even new developments are sometimes given artificially low rates in defiance of the original conception of the program. Even more concerning, there are estimates that less than 1% of structures outside high-risk areas have flood insurance. As a result, the NFIP has operated at a deficit during many fiscal years, with the deficit being among the largest borne by the federal government in years with large events (such as Hurricanes Katrina and Sandy).

Rating and Handling Claims Section V-Rating Information Needed for Rating In What Zone is the Property Located?

Zone identification for the property is a key determinant. Flood insurance rates as well as whether a property is required to be insured rely heavily on the risk assessment placed on the property in the FIRM or FHBM currently in force. The rate charts vary based on whether the property is in a mild-to-moderate zone (B, C, or X), an undetermined zone (D), or any of the various high risk zones on FIRMs (A, AO, AH, A1-30, AE, A99, AR, AR/A1-30, AR/AE, AR/AO, AR/AH, AR/A, VO,V1-30, VE, and V). Until recently, ascertaining the flood risk for an individual property meant a trip to the Planning Department and wading through a box of maps. The process has become far simpler through an online tool maintained by FEMA capable of searching for the current flood risk assessment on individual properties. Printed maps and other tools for reading a FIRM are also available if an alternative to the online search tool is required. It's vital to know whether the zone assessment has changed for that property. If the property has moved to a lower risk rating, the premium may be significantly decreased or the owner may opt to suspend flood insurance altogether. If the property is reassessed into an SFHA, the need for and cost of insurance may change significantly, although waivers through the PRP program can also be obtained to delay rate increases.