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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.
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
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
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