The Flood Insurance Dilemma: Benefit or Burden?

Transcription

1 The Flood Insurance Dilemma: Benefit or Burden? By the Honorable Michael P. Kearns South District Common Council Member City of Buffalo, NY and the Honorable Richard A. Fontana Lovejoy District Common Council Member City of Buffalo, NY June, 2007

2 Index Introduction 3 The Seneca-Cazenovia Creek Flood-Plain Insurance Survey 3 Survey Summary - By the Numbers 3 Observations 3 A Local Action Plan 4 Accomplishments 4 Recommendations 5 Appendices 5 Appendix 1 - A Summary of the Questions and Responses from 5 the Seneca-Cazenovia Creek Flood-Plain Insurance Survey Extract of Selected Respondent Comments 9 Appendix 2 - Flood Insurance Rate Map 10 Appendix 3 - A National Flood Insurance Program Primer 10 An Introduction to Flood Insurance 10 The Reality of Flood Damage and Loss 10 The National Flood Insurance Program (NFIP) 11 Community Participation in the NFIP 11 NFIP Compliance Monitoring 11 Floodplains and Flood Zones 11 Designated Special Flood Hazard Area (SFHA) 11 The Cazenovia Creek and Buffalo River SFHAs - Zones AE and X 12 Decreasing the Flood Threat in SFHA Zones AE and X 12 Flood Insurance 12 The Standard Flood Insurance Policy (SFIP) 12 Obtaining a SFIP 12 SFIP Coverage Requirements 12 The Cost of a SFIP 13 To Learn More 13 Website Information 13 Appendix 4 - Cazenovia Creek Bank/Slope Wall and Bridge Improvements 13 Appendix 5 - Innovative Flood Control Initiative in West Seneca, NY 14 Appendix 6 - Sample FEMA SFIP Premium Rate Chart 14 Appendix 7 - References 15 Page 2

3 Introduction The Seneca-Cazenovia Creek Flood-Plain Insurance Survey During 2006, City of Buffalo Common Council Members Michael P. Kearns (representing the South District) and Richard A. Fontana (representing the Kaisertown section of the Lovejoy District) conducted a survey (See Appendix 1) of the approximately 2,700 property owners and residents located within the Special Flood Hazard Area (SFHA) identified as Zone AE (a 100-year floodplain) and Zone X (a 500-year floodplain) on the 1999 Flood Insurance Rate Map (FIRM) prepared for the City of Buffalo, NY, by Federal Emergency Management Agency (FEMA) (See Appendix 2). This survey was undertaken to gain a better understanding of the numerous complaints received by each Common Council Member regarding the cost of and need for flood insurance as a pre-requisite for obtaining a federally backed mortgage in certain areas (the flood zones) within each of the Common Council districts in accordance with the provisions of the National Flood Insurance Program (the NFIP) (See Appendix 3). As the survey progressed, it became evident that the residents most burdened by the costly federal mandate for obtaining flood insurance knew little of the many details contained in the legislation which created the NFIP and that the information they obtained was often confusing and conflicting. This led Kearns and Fontana to conclude that, in addition to their efforts to determine how wide-spread the Flood Insurance issue was throughout each of their districts, much more would need to be done to address the apparent inequities in the NFIP. The extent of their effort is listed herein. A Survey Summary By the numbers After a series of public announcements and local news stories, the survey was distributed with instructions explaining its purpose and objectives; also, comments were solicited with the understanding that they may appear in a report, but that respondent identities would be kept confidential. A brief summary of the survey responses is as follow: 2,700 property owners were invited to participate in the survey: o 735 responded: 732 owned their property 75% owned property within the South Common Council District 25% owned property within the Lovejoy Common Council District 467 had a first or second mortgage 482 reported that obtaining flood insurance was a requirement for purchasing their property Property Owner Income levels: o Were as high as $300,000 annually o Averaged $41,582 annually o Were most often reported to be $50,000 annually Flood insurance carriers: o 85 different carriers were named as providing flood insurance locally The cost of flood insurance: o Premiums were as high as $5,500 annually o Premiums averaged $534 annually o Premiums were reported most often as being $600 annually o 249 respondents said that the price of their policy has increased over the last 5 years: Some policies increased by more than $300 during the same period of time 25 respondents reported having filed a claim for flood damages under a SFIP: o 0 reported having had a claim for flood damages approved by their insurer 61 property owners reported that they had their property's elevation surveyed 103 respondents purchased a Rider to their Homeowner's insurance to cover basement flooding: o The cost of these Riders was as much as $710 annually o The average cost of these riders was $185 annually o The cost of these riders was as much as $40 annually Observations A Standard Flood Insurance Policy (SFIP) can be an expensive undertaking since mandatory SFIP premiums often cost property owners hundreds, and sometimes, thousands of dollars annually. In some instances, the total amount of premiums paid could exceed the amount borrowed; this typically occurs when lenders require SFIP coverage in an amount equal to the full replacement value of the structure or improvement being financed rather than in an amount equal to the NFIP s minimum coverage requirement (i.e., the lesser of the balance remaining on the financing agreement or the assessed value of the property). 3

4 In the Buffalo, NY, area, there have been numerous reports of prospective buyers withdrawing their purchase offers on properties located within SFHAs, upon learning that they would be required to obtain a SFIP as a condition of their borrowing agreement. Conversely, buyers and sellers often negotiate how to compensate for the added expense of mandatory SFIP premiums, since this cost is not associated with the transfer of a property that is located outside a SFHA. Similarly, the potential for being subjected to the NFIP s mandatory SFIP purchase requirement has even dissuaded some owners from investing in improvements and making needed repairs to their property. In the South and Kaisertown sections of Buffalo, NY, this has contributed to the accelerated deterioration of infrastructure that, in some instances, has led to the devaluation of streets and neighborhoods. In a less flood prone area, such as Buffalo, NY, SFIP premiums appear to be no more than a thinly veiled regressive tax. Individuals least able to afford their annual premiums find that, due to their location and extraordinarily low probability of ever having to invoke their SFIP benefits, they appear to be subsidizing SFIP claims in communities with a much greater risk and incidence of catastrophic flooding and associated damage. For example, in the continental United States, areas such as the Southeast and the Southwest historically have and continue to generate large and repetitive flood insurance claims and monetary payouts, a direct opposite of claims activity in the Northeast. Similarly, as reported in the Flood Insurance Survey, no respondent acknowledged any measure of success when filing an SFIP claim for flood damage. It has been reported that FEMA collects approximately $2 billion annually from SFIP premiums and is expected to pay between $23 to $25 billion in flood insurance claims in the Southeastern States, as a result of flooding caused by Hurricanes Katrina, Rita and Wilma. Furthermore, about 1% of the properties covered by FEMA under the NFIP have flooded more than once, yet they account for about 30% of the claims paid by the agency. Based on the responses to the Flood Insurance Survey, FEMA did not pay any SFIP claims in either the South or Kaisertown communities of Buffalo, NY. However, in instances where individuals were successful with their claims, payments were based on extra added cost coverage and riders. The significant costs involved in applying for a Letter of Map Revision (LOMA) or Letter of Map Revision Based on Fill Process (LOMR-F), along with the uncertainty of being able to successfully remove the flood insurance purchase requirement from a property, has discouraged many property owners from challenging FEMA s elevation determinations. Consequently, property owners often forgo taking action to remove the SFIP purchase requirement from their property, and continue to pay for insurance which they feel they do not need. The likelihood of future flooding and related property damage attributable to winter ice jams on Cazenovia Creek and the Buffalo River has diminished significantly, due to the completion of United States Army Corps of Engineers (USACE) recommended flood abatement initiatives in the City of Buffalo, NY, and the Town of West Seneca, NY. The risk reduction associated with these highly successful preventative measures, if recognized by FEMA under the provisions of the Community Rating System (CRS), could provide much needed financial relief in the form of reduced SFIP premiums for those living in the Cazenovia Creek and Buffalo River floodplain (Zone AE). At this time, however, FEMA has neither revised the current Flood Insurance Study (FIS) and FIRM for the City of Buffalo, NY, to reflect the reduced risk of flooding, nor have they utilized the CRS to lower local SFIP premiums for policyholders in Zone AE. Consequently, property owners continue to be required to purchase costly SFIP coverage, even though they risk less than one occurrence of annual flooding during a one hundred year period and almost no likelihood of ever collecting on their SFIP benefits. Accomplishments A Local Action Plan Residents, property owners, stakeholders and local legislators have become better informed on FEMA s mandatory flood insurance and necessary reforms to the National Flood Insurance Program. New York State Assemblyman Mark J.F. Schroeder (145 th District) has introduced a bill (A7061) that would prohibit lenders from requiring that homeowners purchase flood insurance in excess of amounts required by federal law. In the event that this bill becomes law, no lender will be allowed to deny a loan to a prospective homeowner on the basis that they declined to purchase Standard Flood Insurance Policy coverage in excess of federal guidelines, nor will a lender be able to require a homeowner to purchase flood insurance in excess of an amount equal to the outstanding principal balance of the loan or maximum coverage made available under the National Flood Insurance Act. United States Representative Brian M. Higgins (NY-27) has, on several occasions, directly petitioned FEMA to acknowledge local flood remediation efforts, and has worked to ensure that the region is a recipient of federal funding for continued remediation efforts. 4

5 United States Senator Charles Schumer (NY) has gone on record, acknowledging the inequities of mandatory flood insurance, and as a ranking official in the Democratic majority s leadership, has been a crucial advocate for enacting changes to the National Flood Insurance Program. The Common Council has allocated funds in the Operating Budget to enable the City of Buffalo to hire consultants and experts in flood insurance matters. Common Council Members Kearns and Fontana have successfully eliminated the $45.00 fee which the City of Buffalo, NY, had charged for certifying that homes were located outside of Zone AE, a 100-year floodplain. A public meeting hosted by Common Council Members Kearns and Fontana has been scheduled for July 2, 2007 to release survey findings and inform residents on the details of the mandatory flood insurance they are required to purchase. Recommendations Lawmakers at the local and state level must work within the current parameters of the National Flood Insurance Program to ensure that the community benefit from its provisions. Lobby federal officials to reform the National Flood Insurance Program, through legislation, so that the program applies more equitably to its individual and community participants. Encourage the City of Buffalo, NY, to request a Letter of Map Revision (LOMR) to update the flood hazard information shown on the latest Flood Insurance Rate Map. Request FEMA to provide assistance and support to property owners in their preparation of Letter of Map Amendments and Letter of Map Revisions. Encourage the City of Buffalo to supply all relevant documents and information to the US Army Corps of Engineers to ensure the accurate preparation of a new Flood Insurance Study (FIS) and DIGITAL FIRM, in response to a mandate from Congress, is to be completed by September, Create Risk-based SFIP premiums, as so often is the basis for other insurance products where repeat claims lead to higher premiums or inclusion in high-risk pools and the lack of claims leads to premium reductions. Create a twenty-five (25) year flood plain/zone, to improve measurement focus for changes in topography and weather resulting from man-made improvements and ever-changing weather patterns. Ensure that the City of Buffalo, NY, hires a consultant to evaluate topographic information and to perform hydrologic and hydraulic analyses to determine the effectiveness of flood abatement measures completed after the release of the most recent FIS and FIRM. Ensure that the City of Buffalo, NY, completes all on-going flood remediation projects and reviews succeeding phases of multiyear initiatives such as reconstruction of the slope walls along Cazenovia Creek, as part of the after the City s Department of Public Works continuing efforts to reduce both the current threat and future potential for flooding. Continue the regions efforts to seek funding assistance for its flood abatement and risk reduction initiatives, such as the extension of the concrete slope walls along Cazenovia Creek and new construction and infrastructure reuse in the Buffalo Harbor area, slated for the immediate future. Seek additional relief under the various provisions of the NFIP, specifically as they relate to the periodic update and revision of a community's FIS and FIRM and reduction of SFIP premiums under the provisions of the CRS. Appendices Appendix 1 - A Summary of the Questions and Responses from the Seneca-Cazenovia Creek Flood-Plain Insurance Survey Note: Some respondents failed to answer every survey question and the most common questions left unanswered were those seeking specific financial information. In instances where a respondent elected not to answer a survey question, answered I don t know or 5

6 not applicable, or provided an answer that appeared unreasonable in light of other respondents answers to the same question, additional attempts were made to obtain the missing information or verify the inconsistent responses; if these efforts proved unsuccessful, the participant s response was entered as Unsure or Not Applicable. Address & Phone: Respondents Percentage South Buffalo % Kaisertown % Question # 1: Do you own your home/property? Yes % No 3.4% Question # 2: If you do not own your home/property, who does? This question was included so that a copy of the survey could be sent to the owner of the property. Question # 3: What is your approximate annual income? Respondents Mean Median Mode Range 574 * $41,582 $37,000 $50,000 $1,144 - $300,000 * Twenty-two percent of those surveyed did not answer this question Mean refers to the average of all of the values. Median refers to the middle number in a sequence of values, taken as an average of the two middles numbers when the sequence has an even number of numbers. Mode refers to the most frequently occurring number in a set of values. Range is a statistical term that refers to the difference between the largest and smallest values in a sequence. Question # 4: If you own your home/property, do you currently have a first or second mortgage out on your home? Respondents Percentage Yes % No % Unsure % Question # 5: Do you pay for flood-insurance on this property? Yes % No % Unsure 6.8% Question # 6: Was obtaining flood-insurance on your home/property a requirement for obtaining this mortgage? Yes % No % Unsure % 6

7 Question # 7: Who is your flood insurance provider? Provider Respondents NY Central Mutual 80 State Farm 67 Allstate 48 Travelers 32 Liberty Mutual 22 Nationwide 18 Hartford 14 American Security 10 Other 162 No Provider Specified 282 Total * 735 * In total, eighty-five different flood insurance providers were named. Currently, about one hundred insurance companies write flood insurance with FEMA. 1 Question # 8: How much do you pay annually for flood-insurance on your home/property? Respondents Mean Median Mode Range 445 * $534 $500 $600 $80 - $5,500 * Thirty-nine percent of those surveyed did not answer this question Annual Premium Respondents Less than $ $200 - $ $300 - $ $400 - $ $500 - $ $600 - $ $700 - $ $800 - $ $900 - $999 6 $1,000 - $1,299 6 $1,300 or Greater 6 Unsure or N/A** 290 Total 735 * This question was Not Applicable (N/A) to some respondents, based upon responses to previous questions Question # 9: Has the amount you pay for flood-insurance increased over the last five (5) years? Respondents Percentage Yes % No % Unsure % 7

8 Question # 10: If the amount you pay annually has increased, by approximately how much has it increased? Annual Premium Respondents Percentage Less than $ % $101 - $ % $201 - $ % $300 or greater % Unsure or N/A % Question # 11: Have you ever filed a claim for flood related damages with your flood-insurance carrier? Respondents Percentage Yes % No % Unsure % Question # 12: If you have filed a flood-insurance claim for damages, were you reimbursed by your flood- insurance carrier? Yes * 0 0% No % Unsure or N/A % * Claimed under a Standard Flood Insurance Policy (SFIP). Question # 13: Have you ever privately had your home/property surveyed for elevation? Yes % No % Unsure % Question # 14: If you have privately had your home/property surveyed for elevation, do you recall what this measurement was? Responses to this question varied widely. Question # 15: Do you currently pay for additional coverage (rider to homeowner s insurance) to protect your home/property from basement flooding? Yes % No % Unsure or N/A % 8

9 Question # 16: If you pay for additional coverage to protect your home/property from basement flooding, how much do you pay annually? Respondents Mean Median Mode Range 76 * $186 $52 $40 $10 - $710 * Ninety percent of those surveyed did not answer this question Annual Premium Respondents Less than $ $100 - $199 4 $200 - $299 4 $300 - $399 7 $400 - $499 8 $500 or greater 8 Unsure or N/A 659 Total 735 Do you have any additional information that you think may be useful in this survey or the resolving of this issue? See Extract of Selected Respondent Comments, infra. Extract of Selected Respondent Comments When we purchased [our] house, our [flood insurance] premium was $425; we are now paying $635. I would honestly not purchase another home in South Buffalo or any other flood-zone area. This is a complete rip off! I can t even imagine what its like to paying both flood & homeowners [insurance] on a fixed income. If this is a federal program, why are the premiums so high? My yearly premium for Flood Insurance is comparable to my regular homeowner's policy. I am furious to hear that my Flood Insurance premiums might go up because of hurricane flooding. I already pay federal taxes to help out those areas, and now I have to pay more for Flood Insurance premiums that I am unlikely to ever use! It amazes me that I pay more for flood insurance that only covers structural damage than I do for my homeowner s policy under which I am covered for both structure and the contents. A rider on my homeowner's insurance covering sewer back ups would be sufficient enough and costs less. I had to reduce my Homeowners Insurance coverage, just so I could afford the Flood Insurance. This is ridiculous! My Flood Insurance premium is as much as one of my monthly mortgage payments. We weren t allowed to carry Flood Insurance based on the amount remaining on our mortgage. The bank told us that we needed coverage that was 80% of the replacement cost of our home. Mortgage lenders are requiring homeowners to purchase flood insurance based upon the replacement cost of their property rather than the value of their loan. I owe $71,000 to my lender, and I was told that I have to get $150,000 worth of coverage. For $71,000 of coverage, I would have an annual payment of $ , whereas for $150,000 worth of coverage, I have to pay $951 a year. We re-financed for a lower interest rate in The mortgage company was going to require us to carry flood insurance on the replacement value of our home rather than for the amount owed on the mortgage, which would have taken our payment from about $500, to over $1,200 per year. At that point, we decided to pay off our mortgage in full. I would never even consider buying a home in a so called flood zone again. What a waste of money! My Flood Insurance is $200 a year higher than any homeowners insurance. I find this especially ridiculous considering the odds for a flood are much less than something else happening to my home. I am currently trying to sell my home and am finding the requirement for flood insurance is a deterrent to the sale. 9

10 It is unfair that flood insurance is needed to purchase a home with a mortgage in this area. It is forcing our home values below what they would be if located in surrounding areas. This stuff [flood insurance] is a huge hindrance when trying to sell homes in the area! When buyers see the extra premium that has to be paid in the form of flood insurance, they routinely back out of the sale. I have heard of it many times form many people. I resent having to purchase such expensive insurance. Had I known that Flood Insurance was required in this area, I would have purchased somewhere else. Not until I decided to improve my home did I learn of the requirement. I will not purchase in a flood zone again. We are working on improvements to our property. We had to pay this out of pocket because if we take out any loans on the property we will have to start paying for flood insurance. As a result, the repairs are taking much longer to the complete it is much harder on us financially because we have to save up to pay for everything. Appendix 2 - Flood Insurance Rate Map (FIRM) National Flood Insurance Program Community-Panel Number C Revised: August 23, 1993 SFHA Zone X SFHA Zone AE Appendix 3 - A National Flood Insurance Program Primer The Reality of Flood Damage and Loss An Introduction to Flood Insurance The NFIP defines a flood as "a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties from overflow of inland or tidal waters, from unusual and rapid accumulation or runoff of surface waters from any source, or from mudflow." 2 Each year, countless residential and commercial property owners across the United States experience or become victims of flooding. Sadly, these property owners often find out too late that the property damage and financial losses they have incurred from flooding are not covered by their standard home/business owner's insurance policies. For many years and with few alternatives available, flood victims often sought relief through Federal Disaster Assistance Loans. 2 10

11 Notwithstanding the need for specialized flood insurance, private insurers have not underwritten this type of coverage. While reasons vary, a major deterrent has been the challenge of creating a business model and an insurance product that can amass sufficient reserves to settle large numbers of concurrently filed insurance claims associated with seasonal, recurring and catastrophic weather events while being affordable for consumers and attractive to investors. The National Flood Insurance Program (NFIP) Congress created the National Flood Insurance Program (NFIP), and made federally backed flood insurance available to those most at risk for being victimized by flooding, with passage of the National Flood Insurance Act of In subsequent years, Congress made flood insurance coverage a requirement for obtaining federal assistance for the acquisition, and/or construction, of any structure within a Special Flood Hazard Area (SFHA), with passage of the Flood Disaster Protection Act of 1973 and the Flood Insurance Reform Act of More recently, Congress took additional steps to strengthen the NFIP s mandatory flood insurance purchase requirement, increase the program s overall financial capacity, and ensure greater accountability in program administration, with passage of the Flood Insurance Reform Act of 2004 and the Flood Insurance and Modernization Act of Currently, the NFIP is administered by the Federal Emergency Management Agency (FEMA) under the direction of the United States Department of Homeland Security (DOHS). FEMA describes the NFIP as a federal program enabling property owners in participating communities to purchase insurance protection against losses from flooding. This [program] is designed to provide an insurance alternative to disaster assistance to meet the escalating costs of repairing damage to structures and their contents caused by floods. 3 In furtherance of these goals, FEMA requires that participating communities adopt and enforce local laws that establish minimum building design requirements and adopt floodplain management policies that will reduce the risk of flood losses [in SFHAs]. 4 Community Participation in the NFIP Approximately 75% of the communities in the United States participate in the NFIP, and the program insures over 4.5 million policies nationwide. 5 Although participation in the NFIP is considered voluntary, a community faces severe consequences for electing not to participate in the NFIP within one year of being identified as a SFHA on a FEMA-prepared Flood Insurance Rate Map (FIRM). Non-participating communities are ineligible for financial assistance, from the Department of Veteran Affairs (VA), the Federal Housing Administration (FHA), the Rural Housing Services (RHS), and other federal agencies, for acquisition or construction purposes in any SFHA. 6 Federal financial assistance will also be denied for the repair or reconstruction of any structure that was insurable if the President declares a flood related disaster. 7 NFIP Compliance Monitoring The Federal Government ensures compliance with the NFIP s mandatory flood insurance requirements through its powers of accreditation and regulation of the banking industry. This task is performed by financial institutions such as the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration, and the Farm Credit Administration. 8 All federally regulated and federally insured lenders are subject to penalties ranging from a fine for each violation, to permanent loss of their federal accreditation, for failing to adhere to and enforce the requirements of the NFIP. Lenders are held accountable for notifying borrowers of the NFIP requirement for maintaining SFIP coverage, when a loan is secured by a structure that is located within a SFHA. Designated Special Flood Hazard Area (SFHA) Floodplains and Flood Zones FEMA s most recent study of flooding in the City of Buffalo, NY, was completed on August 23, 1999, and culminated in the release of a Flood Insurance Study (FIS) and an updated FIRM for the community. [See Appendix 2]. These documents identify the Special Flood Hazard Areas (SFHAs) (also known as "floodplains or flood zones ) within a community as locations deemed to be especially flood-prone. The NFIP s guidelines for designating SFHAs are stringent. To remove a lot s SFHA designation, the elevation at the lowest point of the lot must be equal to or above that of the Base Flood Elevation (BFE). If any portion of the lot is determined to be within the boundaries of a floodplain and the lowest point of the lot is even a fraction of an inch below the BFE, then the lot will retain its floodplain designation. 9 Property owners can attempt to remove their lot or structure s floodplain designation by applying to FEMA for a Letter of Map Amendment (LOMA) or Letter of Map Revision Based on Fill Process (LOMR-F). 10 [During the "fill process," the level of the ground is raised in order to increase the flood elevation or to change or redirect the flow of water.] When submitting a LOMA or LOMR-F application to FEMA, mapping and survey data must be provided as evidence that a property's elevation exceeds the applicable BFE listed on the community's FIRM. The process of applying for a LOMA or LOMR-F can be costly and time-consuming, since it will usually require the hiring of a licensed land surveyor or professional engineer to prepare an Elevation Certificate and an attorney to prepare the LOMA or LOMR-F application. Furthermore, the issuance of a LOMA or LOMR-F only removes the federal requirement that flood insurance be maintained on a lot or structure; these determinations do not compel lenders to discontinue their own requirements relating to maintaining flood insurance on a property as a condition of financing

12 The Cazenovia Creek and Buffalo River SFHAs - Zones AE and X The Federal Emergency Management Agency (FEMA) designates approximately 2,700 properties in the South and Kaisertown sections, as being located within the 100-year floodplain, identified as "Zone AE", on the current Flood Insurance Rate Map (FIRM) for the City of Buffalo, NY, [See Appendix 2]. FEMA considers this area to be flood prone because it has been calculated to have a 1% or greater chance of flooding in any year due to the proximity of Cazenovia Creek and/or the Buffalo River. Properties within Zone AE are subject to the National Flood Insurance Program s mandatory Standard Flood Insurance Policy purchase requirement. The same FIRM designates an even greater number of properties within these areas, as being located within the 500-year floodplain identified as Zone X"; FEMA has calculated that these properties have a.2% or greater risk of flooding in any year due to the proximity of Cazenovia Creek and/or the Buffalo River. [See Appendix 2] Current NFIP regulations do not require owners of properties located within a 500-year floodplain to obtain SFIP coverage. This may change in the future, since extending the NFIP s mandatory SFIP purchase requirement to include properties located within 500-year floodplains is being examined as an option for strengthening the NFIP s finances. Decreasing the Flood Threat in SFHA Zones AE and X Over the last several years, local municipalities have devoted significant funding to developing and implementing flood abatement measures which will minimize the risk of flooding posed by Cazenovia Creek and the Buffalo River. Notable improvements include the reconstruction of two (2) bridges and the installation of concrete slope walls (See Appendix 4) along Cazenovia Creek in the City of Buffalo, NY; the completion of an innovative ice-retention structure further upstream in the Town of West Seneca, NY (See Appendix 5); and, the dredging of portions of Cazenovia Creek, the Buffalo River and the Buffalo Harbor. Together, these improvements comprise a multi-million dollar investment that is intended to protect local communities from flooding. The on-going extension of the Cazenovia Creek slope walls, planned development in the vicinity of the Buffalo Harbor, and an anticipated increase in ship traffic within the Buffalo Harbor, are also expected to supplement future flood mitigation efforts. The Standard Flood Insurance Policy (SFIP) Flood Insurance The Standard Flood Insurance Policy (SFIP) covers direct physical losses to the foundation elements of a structure, basement and enclosure utility connections, and mechanical equipment such as furnaces, hot water heaters, clothes washers and dryers, food freezers, air conditioners, heat pumps, electrical junctions, and circuit breakers that are necessary for a structure's habitability. 12 Damages to finished structural elements, such as rugs and paneling, a structure s contents, and most losses attributable to land subsidence, are excluded from coverage under a SFIP unless content coverage has also been purchased. Physical losses directly or indirectly caused by sewer or drain back-ups, the discharge or overflow of sumps or sump-pumps, and seepage or leaks on or through a property are also excluded, unless the proximate cause of that backup, discharge or overflow, seepage or leak was a general condition of flooding in the area. 13 However, many property owners claim that their SFIP carriers have attested that floodwater would need to enter a structure through its first floor before coverage under a SFIP would be effective. Obtaining a SFIP A SFIP may be obtained from any state licensed insurance agent or broker. An SFIP is written in the name of the NFIP or a private insurer participating in the Write Your Own (WYO) Program. Under the WYO program, coverage is written and serviced by the company whose name appears on the policy with the company receiving an expense allowance for policies written and claims processed, while the Federal Government retains responsibility for issuing regulatory guidance and program oversight, as well as for reviewing and settling claims and underwriting losses. 14 A SFIP takes effect thirty (30) days after purchase. SFIP Coverage Requirements The minimum SFIP coverage required by the NFIP for a structure or improvement located within a SFHA is based upon the lesser of the amount remaining on the respective loan agreement (which can be reduced each year as the principal is reduced) or the assessed value of the structure or improvement funded by the respective loan. 15 The NFIP, however, authorizes private lenders to establish their own minimum flood insurance coverage requirements when determining their standard lending practices. 16 Consequently, lenders have often imposed more burdensome requirements on borrowers, such as purchasing and maintaining SFIP coverage in an amount equal to the full replacement value of the structure or improvement securing the respective loan. Typically, only one structure and its contents can be insured under a single flood insurance policy. 17 Under the NFIP, homeowners are allowed to purchase a maximum of $335,000 in flood insurance coverage for a structure and $135,000 for its contents, while businesses and non-residences are allowed $670,000 for a structure and $670,000 for its contents

13 A minimum deductible applies to every flood insurance policy issued under the NFIP. If content coverage has been purchased in addition to the required structural coverage, then a separate deductible will apply to each type of coverage. 19 If authorized by their lender, a policyholder may be able to reduce their annual premium by increasing the amount of their deductible. The Cost of a SFIP The annual premium charged for a SFIP will vary based upon the amount of coverage purchased, a structure's location, age, design and, most importantly, the structure's elevation in comparison to the BFE if the structure is located within an SFHA. 20 The BFE is the height to which it has been calculated that water would likely rise should a base flood event occur, that is a flood that has a 1% chance (in a 100-year floodplain) or.2% chance (in a 500-year floodplain) of being equaled or exceeded in any given year. Under the terms of the NFIP, SFIP annual premiums are set by and at the sole discretion of FEMA. With very few private insurers willing to offer flood coverage that is not federally backed by the NFIP, there is little or no market competition to drive down SFIP premiums. SFIP coverage must be renewed each year and premiums must be paid in one annual payment. If a loan is secured by improved residential real estate or a mobile home, and a federal agency lender, federally regulated lender, or their service providers, is escrowing the loan for taxes, insurance or other reasons, then the flood insurance premium must also be escrowed. 21 Although SFIP premiums vary based on what is insured and the coverage selected (See Appendix 6), a lender's guidelines can affect premiums to a much greater extent. For example, lenders, to secure their loans, can require SFIP coverage for the respective building in an amount equal to the lesser of the outstanding balance on the respective loan agreement or the building's assessed value, or the building's full replacement value. Consequently, in the example above, the premium for "building and contents coverage" could range from $681 - assuming that the lesser of the outstanding mortgage or assessed value of the building is $50,000, to $1,412 - assuming that the replacement cost of the building is $150,000. FEMA has also established the Community Ratings System (CRS) to both reward and encourage communities to voluntarily undertake actions that exceed the minimum flood mitigation efforts required by the NFIP. Depending on the nature and extent of the additional mitigation efforts, participating communities may become eligible for SFIP premium reductions of 5% to 45%. In the City of Buffalo, NY, the Department of Public Works is the coordinator of the CRS program for local property owners. Website Information: To Learn More Additional information on Flood Insurance can be obtained from the FEMA website: Appendix 4 - Cazenovia Creek Bank/Slope Wall and Bridge Improvements 13

14 Appendix 5 - Innovative Flood Control Initiative, West Seneca, NY Appendix 6 Sample FEMA SFIP Premium Rate Chart: Premiums for ZONES A, AE, A1-30, AO, AH (Pre-FIRM) These premiums are based on a single family, one floor, no basement building with a standard $500 deductible. 3 Your premium may be even lower if your community participates in the Community Rating System (CRS). 4 Building & Contents Building Only 1 Contents Only 1,4 Coverage Annual Premium 2,3 Coverage Annual Premium 2 Coverage Annual Premium 2 $35,000/10,000 $503 $35,000 $398 $10,000 $140 50,000/15, , , ,000/20, , , ,000/30,000 1, , , ,000/40,000 1, , , ,000/50,000 1, ,000 1,016 50, ,000/100,000 2, ,000 1, , /1 Includes a Federal Policy Fee of $30 and ICC Premium. Includes a Federal Policy Fee of $30 only. 3 Higher deductible limits are available, up to $5,000 for single-family properties. 4 The Community Rating System (CRS) is a voluntary incentive program that recognizes and encourages community floodplain management activities that exceed the minimum NFIP requirements. As a result, flood insurance premium rates are discounted to reflect the reduced flood risk resulting from the community actions. To learn more about CRS and to see if your community participates, go to FEMA's CRS Web page, at Note: Replacement Cost Coverage is available for single-family dwellings that are primary residences. They must be insured to the maximum amount of insurance available under the program or no less than 80% of the replacement cost at the time of loss. Please refer to the policy or manual for further explanation and requirements. Source: 14

15 Appendix 7 - References: The National Flood Insurance Program s Market Penetration Rate: Estimates and Policy Implications, The RAND Corporation, pg. xv, Section 202(a-b) of Public Law 93 to Section 202(a-b) of Public Law 93 to Flood Insurance Reform and Modernization Act of 2006, Section 1306(b) (2 to 4)

16 Legislators and Elected Officials United States Senator Charles E. Schumer 130 South Elmwood Avenue, Suite 660 Buffalo, New York United States Senator Hillary Rodham Clinton Larkin at Exchange 726 Exchange Street, Suite 511 Buffalo, New York United States Representative Brian M. Higgins Larkin at Exchange 726 Exchange Street, Suite 601 Buffalo, New York New York State Senator William T. Stachowski 2300 Clinton Street Buffalo, New York New York State Assemblyman Mark J. F. Schroeder 2019 Seneca Street Buffalo, New York Erie County Legislator Timothy M. Kennedy 1928 South Park Avenue Buffalo, New York Mayor of the City of Buffalo Byron W. Brown 65 Niagara Square, Room 201 City Hall Buffalo, New York South District Common Council Member Michael P. Kearns 65 Niagara Square, Room 1401 City Hall Buffalo, New York Lovejoy District Common Council Member Richard A. Fontana 65 Niagara Square, Room 1414 City Hall Buffalo, New York