Unit 8: Flood Insurance

1. Unit 8: Flood Insurance

2. Objectives • At the end of this unit, you should be able to: • Describe the terms and conditions of NFIP flood insurance policies. • Explain insurance costs related to building elevation options. • Explain the relationship between insurance rating and floodplain data.

3. Objectives • At the end of this unit, you should be able to: • Describe inconsistencies between floodplain management and insurance requirements. • Explain how a Section 1316 Declaration is used as an enforcement tool.

4. NFIP H a z a r d I d e n t I f I c a t I o n F l o o d p l a I n M a n a g eme n t H a z a r d I d e n t I f I c a t I o n F l o o d p l a I n M a n a g eme n t F l o o d I n s u r a n c e F l o o d I n s u r a n c e Regulations Regulations Compliance Compliance Rating Rating “The Three-Legged Stool” • Three related program areas support the NFIP: • Flood Hazard Identification (mapping) • Floodplain Management (regulations such as building codes and zoning) • Flood Insurance (provision of reasonably priced insurance for property owners in participating communities)

5. NFIP: A Quid Pro Quo Program • FEMA agrees to make flood insurance available within a community when that community agrees to adopt and enforce floodplain management regulations.

6. FEMA Publication 186September 1999 • Mandatory Purchase of Flood Insurance Guidelines

7. Insurable by the NFIP • Walled and roofed structures principally above ground • Manufactured homes or travel trailers, if anchored to a permanent foundation • Contents of structure (available to owners and renters) • Building in the course of construction

8. Not Insurable by the NFIP • Buildings completely over water • Unanchored manufactured homes • Motorized vehicles • Gas and liquid storage tanks outside buildings • Buildings principally below ground • Machinery and equipment in the open • Swimming pools, hot tubs, etc.

9. Factors Used for Rating • Flood zone • Amount of insurance and deductible • Lowest Floor Elevation-Base Flood Elevation • Building type • Foundation • Age (pre- or post-FIRM)

10. Waiting Period • At closing: Policy effective immediately • Required by lender due to map change—1 day • All others—30 days (even for cash purchases)

11. Coverage in Basements and Enclosures • Damage to foundation • Specific machinery/equipment • Furnace • Water heater • Food freezer • Heat pumps • Washer/dryer • Oil tank • Circuit breaker • Central air conditioning

12. Insurance Map Grandfathering • May be beneficial to policyholders at the time of a map change. • Two types: • Continuous coverage grandfathering: Use FIRM in place when flood insurance was first obtained. • Post-FIRM grandfathering: Uses FIRM in effect when structure was built.

13. Continuous Coverage Applies to pre- or post-FIRM structures. Uses FIRM in effect when flood insurance was first obtained. No substantial improvement. Post-FIRM Structure was in compliance. Lowest floor not changed. No substantial improvement. Insurance Map Grandfathering Uses FIRM in effect whenstructure was built if:

14. The Bottom Line • What occurs on the floodplain management side of the program will affect flood insurance rates, either directly or indirectly. • Approximate A Zones • Revising Flood Maps • Budgeting for Map Changes • As-Constructed Elevation Certificates • Elevation & Flood Insurance Costs

15. Unnumbered A Zones • The community should use the best available data to estimate BFE if no BFE has been established by FEMA. • Having a BFE can mean lower insurance rates. • Without BFE’s, elevating at least 2 feet above the Highest Adjacent Grade (HAG) will mean a substantial cost reduction.

16. Revising Flood Maps • If an area, property, or structure is physically removed from the flood zone, the FIRM should be amended or revised. • Flood insurance premiums are based on the current effective flood map.

17. Budgeting for Map Changes • Applicant project budgets often should include costs to apply for and obtain: • Conditional Letters of Map Revision (CLOMRs). • Letters of Map Revision (LOMRs). • Without the map change, the maximum benefits of the project will not be realized.

18. As-Constructed Elevation Certificates • Communities should obtain and maintain the as-constructed Elevation Certificates. • Homeowner: Use to purchase flood insurance for post-FIRM buildings. • Floodplain management: Use to document as-constructed elevations of the lowest floor.

19. Elevation and Flood Insurance Costs

20. BFE 10' NGVD LOWEST FLOOR 5' NGVD Pre-FIRM Structure

21. 2001 Flood: Substantial Damage BFE 10' NGVD LOWEST FLOOR 5' NGVD Damage = $75,000 Market Value = $100,000

22. Structure Repaired, Not Elevated BFE 10' NGVD LOWEST FLOOR 5' NGVD

23. Submit-for-Rate • Published rates go to 1 foot below BFE. • If lowest floor of post-FIRM new/substantially improved structure is more than 1 foot below BFE: • NFIP underwriters determine premium amount. • Premiums are set on a case-by-case basis. • Underwriters consider enclosures and other factors.

24. Submit-for-Rate and Compliance • Specific rating information is shared with the FEMA Regional Office. • The Regional Office reviews the information and contacts the community’s floodplain administrator to: • Verify floodplain management compliance. • Where applicable, request the community remedy any violations to the maximum extent possible.

25. BFE 10'NGVD LOWEST FLOOR 10' NGVD Structure Elevated to BFE

26. BFE 10' NGVD LOWEST FLOOR 12' NGVD Structure Elevated 2' Above BFE

27. BFE 10' NGVD LOWEST FLOOR 8' NGVD Structure Elevated 2' Below BFE

28. BFE 10' NGVD LOWEST FLOOR 10' NGVD V-Zone: Enclosure #1 With Breakaway Walls Enclosure = 299 sq. ft.

29. BFE 10' NGVD LOWEST FLOOR 10' NGVD V-Zone: Enclosure #2 With Breakaway Walls Enclosure =300 sq. ft.

30. Increased Cost of Compliance (ICC) • If the community declares a building substantially damaged or a repetitive loss due to flooding: • An owner with an ICC policy can file an insurance claim. • The ICC benefit pays the cost to bring the building into compliance with State and/or local floodplain management laws or ordinances. • ICC coverage provides payment up to $30,000 for mitigation measures such as elevation.

31. Repetitive Loss vs. Substantial Damage • An ICC repetitive loss structure, per community determination: • Was flood-damaged twice within 10 years. • Had a repair cost that equaled/exceeded 25% of market value each time. • An ICC structure substantially damaged by flood: • Was flood-damaged by a single event. • Will cost 50% or more of the pre-flood market value to restore to pre-damage condition.

32. Eligibility for ICC Coverage • Eligible: Buildings in the SFHA in Regular Program communities • Not eligible: • Buildings insured under Group Flood Insurance Policy • Units insured under a condo unit owner policy • Buildings in Emergency Program communities

33. Eligibility for ICC Repetitive Loss Payment • To receive payment: • Community adopted/enforces a repetitive loss provision, or • Building has a history of NFIP claim payments that satisfy the NFIRA (1994) definition of “repetitive loss structure.”

34. ICC Mitigation Solutions (FRED) • Floodproofing (nonresidential properties only) • Relocating to a new site • Elevating above the flood level in the community • Demolishing the building

35. Local Role in ICC • Enforce the repetitive loss provision in the floodplain ordinance if repetitive losses occur. • Make “substantial damage” and “repetitive loss” determinations. • Provide mitigation options to policyholders; help package ICC benefits with other funding sources. • Coordinate to issue building permits for mitigation measures. • Issue Certificate of Completion/Occupancy.

36. Insurance Map Showing Structures

37. Insurance vs. Floodplain Management • The mandatory purchase of insurance is based on horizontal measurement of the building. • To remove a building from the SFHA using elevation, the lowest adjacent grade (LAG) must also be equal to or higher than the BFE. • For floodplain management purposes, the chief requirement is that the lowest floor elevation is equal to or above the BFE.

38. Specific Differences: Regulations and Insurance • Requirements for floodproofing nonresidential buildings vs. insurance rates • Requirements for enclosures and basements • Preparation and documentation of some Elevation Certificates • Placement of duct work and air conditioning units • Rounding of BFE and LFE to whole numbers by insurance agents

39. Community Rating System (CRS) • Voluntary program: Incentive for local officials to exceed NFIP minimum criteria. • Before applying for CRS, a community must be in full compliance with NFIP minimum criteria. • Grants flood insurance premium discounts for activities intended to: • Reduce flood losses. • Facilitate accurate insurance rating. • Promote awareness of flood insurance.

40. CRS Eligible Activities: Categories • Public information (300 series) • Mapping and regulatory (400 series) • Flood damage reduction (500 series) • Flood preparedness (600 series)

41. Section 1316 Declaration of Violation Contents • Name and address of property owner or legal description of property • Clear and unequivocal declaration of violation of laws or ordinances • Statement and citation of authority • Notice of violation to property owner • Evidence of adherence to Section 1316

42. Effects of Section 1316 • Non-availability of flood insurance for structure through the NFIP • Possible reduction of market value • Risk of damage with no insurance compensation • Possible mortgage foreclosure • Denial of most types of disaster assistance • Used where property owner has not cooperated

43. In-class activity Activity: Best Practices/Issues • Work with others in your group to share stories about best practices and issues related to flood insurance. Possible ideas include: • Local issues and initiatives • Hot topics • Ongoing problems • A shining example or cautionary tale • Choose one story to share with the class. • Appoint a spokesperson to describe the group’s choice.

44. The Joneses Pay for Elevation • Some proceeds from the Joneses’ flood insurance claim are directed toward elevation. • An ICC claim request provides $30,000 for elevation. • A $35,000 SBA disaster loan covers “mitigation” and a battery backup elevator. • They decide to elevate 3 feet above the new BFE, more than halving the cost of future flood insurance.