Flood Insurance Flood Insurance 101101

Bill Massey and Sam CramptonBill Massey and Sam CramptonDewberryDewberry

South Florida Water Management DistrictFloodplain Management Training

May 2005

NFIP Is A Quid Pro Quo ProgramNFIP Is A Quid Pro Quo Program

FEMA agrees to make flood FEMA agrees to make flood insurance available within a insurance available within a community when that community when that community agrees to adopt and community agrees to adopt and enforce floodplain management enforce floodplain management regulations.regulations.

Who Can Purchase Flood Who Can Purchase Flood Insurance?Insurance?

Who Can Purchase Flood Who Can Purchase Flood Insurance?Insurance?

Any property owner in a NFIP Any property owner in a NFIP participating community can participating community can purchase flood insurance.purchase flood insurance.

Any eligible structure and its Any eligible structure and its contents in any flood zone. contents in any flood zone.

Any property owner in a NFIP Any property owner in a NFIP participating community can participating community can purchase flood insurance.purchase flood insurance.

Any eligible structure and its Any eligible structure and its contents in any flood zone. contents in any flood zone.

Participating CommunityParticipating Community

Has adopted and agreed to Has adopted and agreed to enforce local floodplain enforce local floodplain management program.management program.

Has adopted flood maps prepared Has adopted flood maps prepared by FEMA for use in regulating by FEMA for use in regulating development in SFHA.development in SFHA.

Flood Insurance Flood Insurance Availability Availability

Flood insurance may be Flood insurance may be sold by any state-sold by any state-licensed insurance licensed insurance agent. agent.

More than 19,000 More than 19,000 participating counties, participating counties, cities, towns, tribal cities, towns, tribal governments and native governments and native villages.villages.

Flood Insurance vs. Disaster AssistanceFlood Insurance vs. Disaster Assistance

Pays without a Pays without a presidential disaster presidential disaster declarationdeclaration

Provides coverageProvides coverage Allows quicker flood Allows quicker flood

loss recoveryloss recovery Puts the property Puts the property

owner in controlowner in control

Available only after Available only after presidential declaration presidential declaration

Most disaster Most disaster assistance for repairs is assistance for repairs is an SBA loanan SBA loan

Loan must be repaid Loan must be repaid with interest with interest

Loan is in addition to Loan is in addition to the existing mortgagethe existing mortgage

Flood Insurance Disaster Assistance

NFIP Insurable Interests NFIP Insurable Interests

Manufactured homes, travel trailers Manufactured homes, travel trailers Anchored to a permanent foundationAnchored to a permanent foundation Attached to utilities Attached to utilities

Walled and roofed structures Walled and roofed structures Principally above groundPrincipally above ground Not over waterNot over water

Buildings in the course of constructionBuildings in the course of construction Contents of an insurable structureContents of an insurable structure

What’s Not Insurable What’s Not Insurable

Buildings entirely over waterBuildings entirely over water Buildings principally below groundBuildings principally below ground Manufactured homes and travel trailers not Manufactured homes and travel trailers not anchored to a permanent foundation anchored to a permanent foundation Motorized vehicles (RVs, cars, motorcycles)Motorized vehicles (RVs, cars, motorcycles) Gas and liquid storage tanksGas and liquid storage tanks Contents, machinery, equipment in the Contents, machinery, equipment in the openopen Swimming pools, hot tubs/spas (not located Swimming pools, hot tubs/spas (not located in a bathroom) and associated equipmentin a bathroom) and associated equipment

DefinitionsDefinitions

Special Flood Special Flood Hazard Area Hazard Area The area on a The area on a

FHBM or a FIRM FHBM or a FIRM which is subject which is subject to the Base Flood. to the Base Flood. The darkly shaded The darkly shaded areas are shown areas are shown as zones A, AO, as zones A, AO, AH, A1-30, AE, AH, A1-30, AE, A99, V, V1-30, and A99, V, V1-30, and VE.VE.

Base Flood Base Flood The flood having The flood having

a 1% probability a 1% probability of being equaled of being equaled or exceeded in or exceeded in any given year. any given year.

Definitions (Continued)Definitions (Continued)

FloodFlood““A general and temporary A general and temporary condition of partial or complete condition of partial or complete inundation of inundation of two or more acrestwo or more acres of of normally dry land areas or of normally dry land areas or of two or two or more propertiesmore properties from (1) overflow of from (1) overflow of inland or tidal waters (2) unusual inland or tidal waters (2) unusual and rapid accumulation or runoff and rapid accumulation or runoff of surface waters (3) mudflows of surface waters (3) mudflows caused by flooding.”caused by flooding.”

Two Program PhasesTwo Program Phases

EmergencyEmergency Flat RatesFlat Rates Limited CoverageLimited Coverage Flood Hazard Boundary MapFlood Hazard Boundary Map

RegularRegular Actuarial RatesActuarial Rates Additional CoverageAdditional Coverage Flood Insurance Rate MapFlood Insurance Rate Map

Building / Contents Building / Contents CoverageCoverage

Building coverage is Building coverage is required by the required by the mortgage lender.mortgage lender.

Contents coverage is Contents coverage is NOTNOT automatic! automatic!

Renters can buy just Renters can buy just contents coverage.contents coverage.

Factors Used For Rating Factors Used For Rating

Amount of insuranceAmount of insurance Lowest floor elevation/ base flood elevationLowest floor elevation/ base flood elevation Location – flood zoneLocation – flood zone Building typeBuilding type Foundation typeFoundation type Age of construction (pre-FIRM or post-FIRM)Age of construction (pre-FIRM or post-FIRM)

Pre-FIRM vs. Post-FIRMPre-FIRM vs. Post-FIRM

Pre-FIRM: structure constructed Pre-FIRM: structure constructed prior to community’s initial flood prior to community’s initial flood insurance rate map (FIRM) or before insurance rate map (FIRM) or before 12/31/7412/31/74

Post-FIRM: structure built or Post-FIRM: structure built or substantially improved after the substantially improved after the initial FIRM or after 12/31/74initial FIRM or after 12/31/74

Limits of Coverage Limits of Coverage

BuildingsBuildings EmergencyEmergency RegularRegular

Single FamilySingle Family $ 35,000$ 35,000 $250,000$250,000Other ResidentialOther Residential $100,000$100,000 $250,000$250,000Non-ResidentialNon-Residential $100,000$100,000 $500,000$500,000

Contents Contents EmergencyEmergency RegularRegularResidentialResidential $ 10,000$ 10,000 $100,000$100,000

Non-ResidentialNon-Residential $100,000$100,000 $500,000$500,000

Policy Effective DatesPolicy Effective Dates

Waiting periodWaiting period 30 days - 30 days -

standardstandard Same day - Same day -

loan closing loan closing 1 day - 1 day -

required by required by lender due to lender due to flood map flood map changechange

Basement or Enclosure Basement or Enclosure CoverageCoverage

Basement - Basement - below grade on below grade on all sides all sides

Restrictions in Restrictions in coverage applycoverage apply

Limited building Limited building machinery and machinery and equipment is equipment is coveredcovered

Limited Coverage for Limited Coverage for Basements or Enclosures Basements or Enclosures

Foundation elementsFoundation elementsSpecific itemsSpecific items

-- FurnacesFurnaces-- Water heaterWater heater-- Circuit breaker boxesCircuit breaker boxes-- Washers & dryersWashers & dryers-- Food freezersFood freezers-- Air conditionersAir conditioners-- Heat pumpsHeat pumps-- Water softenersWater softeners

Preferred Risk Policy Preferred Risk Policy

B, C, or X Zone on current FIRMB, C, or X Zone on current FIRM Provides combinations of building Provides combinations of building and contents coverageand contents coverage Reasonably priced ($106-$326)Reasonably priced ($106-$326) Rate includes Federal Policy fee & Rate includes Federal Policy fee & ICCICC No expense constant chargedNo expense constant charged

Residential Condominium Residential Condominium Building Association Building Association

PolicyPolicy

Covers Building and Common Covers Building and Common AreasAreas

$250,000 X Number of Units$250,000 X Number of Units Co-Insurance Provision applies if Co-Insurance Provision applies if

building is not insured to 80 % of building is not insured to 80 % of value or morevalue or more

Coverage also available for Coverage also available for individual units and contentsindividual units and contents

Flood Insurance Pays Flood Insurance Pays

AActual ctual CCash ash VValue (alue (ACVACV)) ACVACV = Replacement Cost - = Replacement Cost -

DepreciationDepreciation Only exceptionOnly exception

Primary residences insured to 80% Primary residences insured to 80% or more of value have or more of value have Replacement Cost Coverage (RCV)Replacement Cost Coverage (RCV)

DeductiblesDeductibles

StandardStandard Pre-FIRM Pre-FIRM

$1,000$1,000 Post-FIRM $ Post-FIRM $

500500

OptionalOptional Up to $5,000Up to $5,000 Reduces Reduces

premiumpremium Increase anytimeIncrease anytime Decreased only Decreased only

at renewalat renewal Must have Must have

lender’s approvallender’s approval

LOWEST FLOOR5’ NGVD

BFE 10 NGVD

Pre FIRM Structure

Pre-FIRM Premium A Zone $595V Zone $845

(Includes all fees & ICC)

LOWEST FLOOR5’ NGVD

BFE 10 NGVD

2001 FLOOD

Damage = $75,000Market Value = $100,000

STRUCTURE SUBSTANTIALLY DAMAGED

LOWEST FLOOR5’ NGVD

BFE 10 NGVD

2001 - Structure Repaired - Not Elevated

Re-rated as Post-FIRM Actuarial Premium=

AE Zone $4,140VE Zone $8,205

(Includes all fees & ICC)

Elevated to BFE

BFE 10 NGVD

LOWEST FLOOR10’ NGVD

Re-rated as Post-FIRM Actuarial Premium=

AE Zone $431VE Zone $1,136

(Includes all fees & ICC)

LOWEST FLOOR12’ NGVD

BFE 10 NGVD

Re-rated as Post-FIRMActuarial Premium=

AE Zone $266VE Zone $640

(Includes all fees & ICC)Elevated 2 ft. above BFE

Post FIRM Re-ratingActuarial Premium=

AE Zone $1,465VE Zone $1,760

(Includes all fees & ICC)

BFE 10 NGVD

LOWEST FLOOR8’ NGVD

Elevated 2 ft. below BFE

BFE 10 NGVD

LOWEST FLOOR10’ NGVD

299 sq ft

Post FIRM RatingActuarial Premium

VE Zone $1,370(Includes all fees & ICC)

V-Zone - enclosure with V-Zone - enclosure with breakaway walls, breakaway walls, <<299 sq. ft.299 sq. ft.

BFE 10 NGVD

LOWEST FLOOR10’ NGVD

300 sq ft

Post FIRM RatingActuarial Premium

VE Zone $1,630(Includes all fees & ICC)

V-Zone - enclosure with V-Zone - enclosure with breakaway walls, breakaway walls, >> 300 sq. ft. 300 sq. ft.

How Are Approximate Zone A Structures Rated?

Approximate A Zone Approximate A Zone RatingRating

Structure Not Elevated; No Structure Not Elevated; No Elevation Certificate -- Elevation Certificate -- $$$$$$$$

Elevate 2 or more feet above Elevate 2 or more feet above Highest Adjacent Grade (HAG) -- Highest Adjacent Grade (HAG) -- $$$$

Elevate to or above estimated BFE Elevate to or above estimated BFE -- -- $$

Variances and RatingVariances and Rating

An elevation variance An elevation variance does notdoes not waive: waive: risk-based rates risk-based rates mandatory purchase requirements mandatory purchase requirements

A structure built one foot below A structure built one foot below BFE may triple the cost of flood BFE may triple the cost of flood insuranceinsurance

Structures built two or more feet Structures built two or more feet below BFE require “submit-to-rate” below BFE require “submit-to-rate”

SECTION 1316 OF THE SECTION 1316 OF THE NATIONAL FLOOD INSURANCE NATIONAL FLOOD INSURANCE

ACT OF 1968ACT OF 1968

"No new flood insurance coverage "No new flood insurance coverage shall be provided …for any property shall be provided …for any property which…has been declared by a duly which…has been declared by a duly constituted body, to be in violation constituted body, to be in violation of State or local laws, regulations, of State or local laws, regulations, or ordinances which are intended to or ordinances which are intended to discourage or otherwise restrict discourage or otherwise restrict land development or occupancy in land development or occupancy in flood-prone areas."flood-prone areas."

Declaration Of ViolationDeclaration Of Violation

IncludesIncludes

Name and address of property ownerName and address of property owner

Description of propertyDescription of property

Cited declaration of violationCited declaration of violation

Statement of authorityStatement of authority

Notice of violationNotice of violation

Evidence of adherence to Section 1316Evidence of adherence to Section 1316

Effects Of Section 1316Effects Of Section 1316

Non-availability of flood insurance for Non-availability of flood insurance for structurestructure

Possible mortgage foreclosurePossible mortgage foreclosure Denial of disaster assistance for repair of Denial of disaster assistance for repair of

structural damagestructural damage Reduction in property value and Reduction in property value and

marketability marketability Risk of flood damage without Risk of flood damage without

compensationcompensation

FEMA 186 / September FEMA 186 / September 19991999

Mandatory Purchase of Mandatory Purchase of Flood Insurance Flood Insurance

Flood Disaster Prevention Act of Flood Disaster Prevention Act of 19731973 Flood insurance purchase is Flood insurance purchase is

required to make, increase, extend required to make, increase, extend or renew any loan secured by or renew any loan secured by property located in a SFHAproperty located in a SFHA

Flood insurance required for the Flood insurance required for the life of the loanlife of the loan

Mandatory Purchase of Mandatory Purchase of Flood InsuranceFlood Insurance

Flood Insurance Reform Act of 1994Flood Insurance Reform Act of 1994 Established penalties for lender non-Established penalties for lender non-

compliancecompliance Requires lenders to review revised Requires lenders to review revised

FIRMsFIRMs Requires borrower notification and Requires borrower notification and

mandatory purchase when revised FIRM mandatory purchase when revised FIRM shows property is in SFHAshows property is in SFHA

If escrow account is established, If escrow account is established, requires escrow for flood insurancerequires escrow for flood insurance

GuidelinesGuidelines

For Federally BackedMortgages,

When building located in a SFHAis used as loan collateral,

Flood Insuranceis required for the life of the loan!!!

FIRM Is Revised, BFEs FIRM Is Revised, BFEs Increase Increase – How Is Flood Insurance – How Is Flood Insurance

Rated?Rated?

Structure built in compliance Structure built in compliance with earlier FIRM may be rated with earlier FIRM may be rated with the earlier FIRM with the earlier FIRM ifif::• Structure has had continuous flood Structure has had continuous flood

coverage, coverage, oror• Community confirms building was Community confirms building was

built in compliance with earlier built in compliance with earlier FIRM and has not been altered to FIRM and has not been altered to make it non-compliantmake it non-compliant

FIRM Is Revised, BFEs FIRM Is Revised, BFEs Decrease -

How Is Flood Insurance Rated?How Is Flood Insurance Rated?

Structure may be eitherStructure may be either Rated using the old FIRM, Rated using the old FIRM, oror Rated using new FIRM -- BFE Rated using new FIRM -- BFE

decreased and flood insurance decreased and flood insurance premium would be reducedpremium would be reduced

Pre-FIRM – How to Rate Pre-FIRM – How to Rate It?It?

Pre-FIRM structure Pre-FIRM structure has the option has the option • Use Pre-FIRM rate – no Use Pre-FIRM rate – no

elevation certificate elevation certificate requiredrequired

OROR• Use Post-FIRM risk-Use Post-FIRM risk-

based rates – based rates – elevation certificate elevation certificate requiredrequired

Flood Zone DeterminationsFlood Zone Determinations

Special Special Flood Flood

Hazard Hazard DeterminatiDeterminati

on Formon Form

Special Special Flood Flood

Hazard Hazard DeterminatiDeterminati

on Formon Form

WA

TER

C

REEK

FLOOD PARK

el13el13

el14el14

el12el12

ZONE AE

LENDER NAME AND ADDRESSCOLLATERALLENDER ID NUMBERLOAN IDENDIFIERAMOUNT REQUIRED

Standard Flood Hazard Standard Flood Hazard DeterminationDetermination

Community Rating SystemCommunity Rating System

Provides incentive for Provides incentive for communities to implement communities to implement programs that exceed NFIP programs that exceed NFIP minimum criteriaminimum criteria

VoluntaryVoluntary program that program that gives flood insurance gives flood insurance premium credits for premium credits for activities undertaken toactivities undertaken to Reduce flood lossesReduce flood losses Facilitate accurate Facilitate accurate

insurance ratinginsurance rating Promote the awareness of Promote the awareness of

the benefits of flood the benefits of flood insuranceinsurance

CRS Application ProcessCRS Application Process

To apply, a community mustTo apply, a community must

Complete the Application Worksheets, Complete the Application Worksheets, andand

Submit documentation that CRS Submit documentation that CRS activities activities are being implementedare being implemented

FEMA Region and State NFIP Coordinator FEMA Region and State NFIP Coordinator and ISO review the CRS applicationand ISO review the CRS application

CRS Application ProcessCRS Application Process

FEMA and ISO FEMA and ISO

Verify information and Verify information and community's implementation of community's implementation of activitiesactivities

Set credit to be granted, andSet credit to be granted, and

Notify community, State, and Notify community, State, and insurance companies of CRS insurance companies of CRS discountdiscount

National Flood Insurance ProgramNational Flood Insurance ProgramIncreased Cost of Compliance (ICC)Increased Cost of Compliance (ICC)

National Flood Insurance Reform Act of National Flood Insurance Reform Act of 19941994

September 24, 1994September 24, 1994

““The National Flood Insurance Program The National Flood Insurance Program shall enable the purchase of insurance to shall enable the purchase of insurance to cover thecover the

cost of compliance with land use and cost of compliance with land use and controlcontrol

measures established under Section 1361.”measures established under Section 1361.”

Purpose of ICC CoveragePurpose of ICC Coverage

ICC provides for the payment of a ICC provides for the payment of a claim to pay for additional cost of claim to pay for additional cost of compliance with State or local compliance with State or local floodplain management laws or floodplain management laws or ordinances when a ordinances when a building has been building has been declared substantially or repetitively declared substantially or repetitively damaged by flooding.damaged by flooding.

ICC provides for the payment of a ICC provides for the payment of a claim to pay for additional cost of claim to pay for additional cost of compliance with State or local compliance with State or local floodplain management laws or floodplain management laws or ordinances when a ordinances when a building has been building has been declared substantially or repetitively declared substantially or repetitively damaged by flooding.damaged by flooding.

Maximum ICC CoverageMaximum ICC Coverage

$30,000$30,000 No separate deductibleNo separate deductible Maximum amount that can be paid for Maximum amount that can be paid for

both flood loss and ICC claim cannot both flood loss and ICC claim cannot exceed :exceed :

-- $250,000 - single family$250,000 - single family

-- $500,000 - non-residential$500,000 - non-residential

-- $250,000 - residential condo x $250,000 - residential condo x number of unitsnumber of units

QUESTIONSQUESTIONSQUESTIONSQUESTIONS

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QUESTIONS?????QUESTIONS?????