a Welcome to Key Fundamentals of Flood Insurance Focused on flood insurance basics for insurance professionals (Part 1) 1 Section 1 INTRODUCTION AND GENERAL RULES 3 1
Here s our AGENDA Section 1 Introduction and General Rules Section 2 - Policy Rating, Elevations, Premiums and More Section 3- Coverage, limitations and Exclusions in the SFIP Section 4- Loss Settlement Provisions Section 5- Flood Insurance Resources This course is divided into two sessions Each session is approximately 2 hours long NFIP Flood Insurance Manual Access the NFIP Flood Insurance Manual: Online at the Flood Insurance Library: http://www.fema.gov/flood-insurance-manual 5 2
Training Agenda Things Agents Need to Know The SFIP excludes time-element exposures. 7 Every building is in a flood zone. 1 2 Flood insurance can be purchased in any flood zone not just high-risk flood zones. The SFIP provides limited coverage for basements. 6 5 4 3 Building and contents coverage limits are usually purchased separately. The Standard Flood Insurance Policy (SFIP) is not a guaranteed replacement cost policy. A federal disaster declaration is not required for a policyholder to file a flood insurance claim. 6 What is a flood? NFIP definition of flood 8 3
What is a flood? NFIP definition of flood 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 (one of which is your property) from: a. Overflow of inland or tidal waters, b. Unusual and rapid accumulation or runoff of surface waters from any source, c. Mudflow. 9 What is a flood? Mudflow A river of liquid and flowing mud on the surface of normally dry land areas as when earth is carried by a current of water Source: www.floodsmart.gov Not Mudflows: Landslide Slope failure Saturated soil mass 10 4
What is a flood? Flood Related Erosion Collapse or subsidence of land along the shore of a lake or similar body of water Caused by waves or currents of water exceeding cyclical levels Results in flooding Who has flood risk? All Property Owners All Zones 5
SFHAs and Non-SFHAs Special Flood Hazard Areas (SFHAs) High Risk Zones AE (replaces A1-A30) A, AH, AO, A99, AR VE (replaces V1-V30), V, VO Non-Special Flood Hazard Areas (non-sfhas) Low to Moderate Risk Zones B, C, X D (undetermined) 100-year floodplain = 1% annual chance flood Over 30-year mortgage likelihood grows from 1% to at least 26% Determining the Flood Zone 14 6
Training Agenda Flood Insurance Rate Map (FIRM) SFHAs appear as dark shading on a Flood Insurance Rate Map (FIRM). 15 Digital Flood Insurance Rate Map (DFIRM) 16 7
FEMA Map Service Center Locating flood maps: www.msc.fema.gov 17 How is NFIP flood insurance purchased? How does the NFIP Work? 8
Who can buy NFIP flood insurance? Community Participation All Zones Participating Communities FEMA agrees to make flood insurance available COMMUNITY agrees to adopt and enforce floodplain management regulations 21 9
Community Status Book Report http://www.fema.gov/national-flood-insurance-program/national-floodinsurance-program-community-status-book 22 CBRS System Ability to write NFIP policies may be restricted in some: Coastal Barrier Resources Act (CBRA) areas Otherwise Protected Areas (OPA) Coastal Barrier Resources Act and Coastal Barrier Improvement Act enacted: October 18, 1982 November 16, 1990 Buildings may be ineligible for coverage in participating communities, If constructed on or after identification date. 10
How is NFIP flood insurance purchased? Write Your Own Company NFIP Direct Servicing Agent Licensed Property and Casualty Agent Who MUST buy flood insurance? A or V Zones 11
Who MUST buy flood insurance? Used as security for a loan Who MUST buy flood insurance? Designated Loan 12
What is a designated loan?. A loan secured by a building or mobile home that is located or to be located in a Special Flood Hazard Area in which flood insurance is available under the Act Please note: Emphasis on a building or mobile home as collateral Who SHOULD buy flood insurance? Flood Insurance vs. Disaster Assistance 13
Flood Insurance vs. Disaster Assistance 31 How much NFIP flood insurance can be purchased? NFIP maximums vary by building type and program limits 14
How much flood insurance coverage is available? Emergency Program Regular Program Residential (1-4 family) Building Contents Other Residential $35,000 $10,000 $250,000 $100,000 Building $100,000 $500,000 Contents $ 10,000 $100,000 Non-Residential Business/Other Non-Residential Building Contents $100,000 $500,000 $100,000 $500,000 33 When does an NFIP policy become effective? 30-day waiting period Exceptions 15
When does an NFIP policy become effective? There is a 30 day waiting period before new or modified flood insurance policies go into effect. Exceptions are provided for: Wildfire exception Insurance in connection with a loan transaction. (MIRE) Insurance purchased within 13 months of a map revision (1-day wait). For detailed information, please see the General Rules section of the Flood Insurance Manual 35 KEY NFIP TERMS, TOOLS, AND RULES To use and to live by 37 16
Full Risk Rates Defining Pre-FIRM and Post-FIRM Pre-FIRM Post-FIRM Built before initial FIRM or On or before 12/31/1974 On or After the initial FIRM or After 12/31/1974... whichever is LATER 38 Full-Risk Rates vs. Subsidized Rates Represent the building s true flood risk. Premium reflects the risk assumed by the program and all administrative expenses. Takes into account the full range of possible flood losses. Do not represent the building s true flood risk. Determined with limited underwriting information Discounted rates that have traditionally been available for Pre-FIRM buildings in A or V zones. Subsidized 39 17
Regular vs. Emergency Program Emergency Program Intitial participation phase Limited amount of coverage Flood Hazard Boundary Map (FHBM) Regular Program Final phase of participation Full limits of coverage Flood Insurance Rate Map (FIRM) 40 Base Flood Elevations (BFEs) BFE = 1% Chance Flood 41 18
Preferred Risk Policy Lower Cost Dwelling Form Preferred Risk Policy B,C,X Zones General Property Form 42 Miscellaneous NFIP Rules NFIP Policy Term 1 year annual term All policies NFIP Direct Write-Your-Own Evidence of Insurance Flood insurance application & premium payment Copy of declarations page No binders Community Participation Probation Suspension Rules 43 19
Key Takeaways Special Flood Hazard Areas are represented on flood maps as zones A or V. NFIP flood insurance can be purchased in communities participating in the NFIP regardless of the flood zone. Licensed property & casualty insurance agents write NFIP policies through either private sector Write-Your-Own carriers or the NFIP Servicing Agent. The purchase of flood insurance is mandatory as a condition of federallyregulated loans for buildings in Special Flood Hazard Areas. NFIP policies are rated using either subsidized or full-risk rates. Section 2 POLICY RATING, ELEVATIONS, PREMIUMS AND MORE 48 20
Case Study Facts Your client has just purchased a home in Napa, CA and he approaches you to buy a flood insurance policy that is required by his lending institution since the house is in flood zone AE. Napa, CA Rating Case Study About the home It is a single family dwelling with a detached garage that will be his primary residence. The house was built in 1995. It is a two-story house and, like most homes in Napa, it does not have a basement. Information to gather What do you need to know in order to provide your client a quote? Let s take a look at the information you would need to gather; how you use and interpret it; and we ll go step-by-step to develop your client s quote. How much flood insurance to buy Since the house and its garage have a replacement cost value well above the NFIP s $250,000 single family maximum building limit, the new homeowner wants to buy the maximum amount of coverage on the building along with $100,000 worth of coverage for his personal property. 49 Rating Elements Single family dwelling with detached garage Two-story home with no basement Built in 1995 in Napa, CA Flood Zone AE $250,000 Building Coverage $100,000 Personal Property Coverage Minimum deductibles Napa, CA Rating Case Study 50 21
Step 1 Determine Pre-FIRM or Post-FIRM status Utilize Community Status Book http://www.fema.gov/national-flood-insurance-program/national-floodinsurance-program-community-status-book Napa, CA Rating Case Study 51 Case Study Talking Points Napa, CA Rating Case Study 52 22
Community Status List http://www.fema.gov/national-flood-insurance-program/national-flood-insurance-program-community-status-book 53 Step 1 Determine Pre-FIRM or Post-FIRM status Utilize Community Status Book Initial FIRM Date: 9/5/1979 Year Built: 1995 Post-FIRM Building Napa, CA Rating Case Study 54 23
Step 2 Locate a FEMA Elevation Certificate Blank Elevation Certificate Form Napa, CA Rating Case Study 55 What is meant by elevation? Lowest Floor Elevation Elevation Difference 24
Elevation Difference Elevation difference refers to the height of a structure relative to BFE A structure above BFE is less likely to experience flood damage Less risk = lower premiums 58 What is a Base Flood Elevation? Anticipated floodwater rise Regulatory requirement for elevation or floodproofing 25
What is a Base Flood Elevation? Base flood is a flood that has a 1% chance of being equaled or exceeded. BFE is the expected height of that 1% chance of flood Base Flood Elevation 60 Lowest Flood Elevation BASEMENT 61 26
Why are Elevation Certificates used? An EC includes important information for determining a riskbased premium EC shows: Location of the building Lowest floor elevation Building characteristics Flood zones Base flood elevation Elevation Certificates (EC) See building diagrams in the NFIP Flood Insurance Manual or the EC instructions 63 How are Elevation Certificates used? An Elevation Certificate: Certifies building elevation Documents community compliance Determines policy rates Supports map revisions and amendments 64 27
Who Completes an Elevation Certificate? A surveyor, engineer, or architect must certify the building elevation Insurance agents use this information for rating 65 Where to locate an Elevation Certificate for a building: Where to find an Elevation Certificate? Ask the local floodplain manager Ask the sellers Ask developer/builder Check the property deed Hire a licensed land surveyor, professional engineer or certified architect 66 28
FEMA Elevation Certificates Use of Elevation Certificates Pre-FIRM Construction (SFHAs) Not Required: Pre-FIRM subsidized rating Required: Full-risk rating approach. Non-SFHA zones (B, C, D, and X) Elevation certificates not required Post-FIRM Construction (SFHAs) Elevation certificates are required 67 FEMA Elevation Certificate EC Sections A thru F 68 29
FEMA Elevation Certificate EC Sections Section A Section B Section C Section D Sections E,F 69 FEMA Elevation Certificate EC Sections Section A 70 30
FEMA Elevation Certificate EC Sections Section B 71 FEMA Elevation Certificate EC Sections Section C 72 31
FEMA Elevation Certificate EC Sections Section D 73 FEMA Elevation Certificate EC Sections Sections E & F 74 32
FEMA Elevation Certificate Building Diagrams 75 FEMA Elevation Certificate Building Diagrams 33
FEMA Elevation Certificate Building Diagram 1A 77 Step 3 Utilize FEMA Elevation Certificate Determine Elevation Difference Napa, CA Rating Case Study 79 34
FEMA Elevation Certificate EC Sections City of Napa - 060207 Napa County CA AE 11.0 Single family dwelling 2-story home - no basement Built in 1995 in Austin, TX Post-FIRM construction Flood Zone AE Diagram 1A slab on grade 80 FEMA Elevation Certificate EC Sections City of Napa - 060207 Napa County CA AE 11.0 Single family dwelling 2-story home - no basement Built in 1995 in Austin, TX Post-FIRM construction Flood Zone AE Diagram 1A slab on grade 81 35
Step 3 Utilize FEMA Elevation Certificate Determine Elevation Difference Napa Case Study Elevation Difference: +1 Lowest Flood Elevation: 12.1 Base Flood Elevation: 11.0 Elevation Difference: +1.1 Rounds down: +1.0 Napa, CA Rating Case Study 82 Step 4 Determine Rating Approach Subsidized rating vs. Full-risk rates Napa, CA Rating Case Study 83 36
Reform Legislation Impact Individual premium increases *Limits increases to Includes Reserve Fund Assessment 18% Does not include: HFIAA surcharge Federal Policy Fee Limits increases to 18% 25% Annual 25% Increases Annual Increases Subsidized rates for: Non-primary residences Business properties Severe repetitive loss Substantially Damaged Substantially Improved 84 Impact of Biggert-Waters Reform Act How are premiums changing? As of January 1, 2013 Non-primary residences* Subsidized rates increase 25% per year upon renewal Until they reach full risk-rate Subsidized 25% 25% 25%? 25%? Full Risk Rates *A non-primary residence is a single family dwelling, condominium unit, apartment unit, or unit within a cooperative building that will not be lived in by the policyholder or the policyholder s spouse for more than 50% of the 365 days following the current policy effective date. A policyholder and the policyholder s spouse may not collectively have more than one primary residence. (See Flood Manual for complete details) 85 37
Impact of Biggert-Waters Reform Act How are premiums changing? Effective April 1, 2016 Subsidized rates increase for: Business properties (non-residential)* Subsidized rates increase 25% per year upon renewal Until they reach full risk-rate Subsidized 25% 25% 25%? 25%? Full Risk Rates *A non-residential business is a building in which the named insured is a commercial enterprise primarily carried out to generate income and the coverage is for: A building designed as a non-habitational building A mixed use building in which the total floor area devoted to residential uses is: 50% or less for single family 75% or less for all other residential properties A building designed for use as office or retail space, wholesale space, hospitality space or for similar 86 uses Subsidized Rates Pre-FIRM Full-Risk Rates Post-FIRM $4,321/yr 4 ft above BFE $624/yr $4,321/yr 1 ft below BFE $4,683/yr $4,321/yr 4 ft below BFE $11,670/yr *AE Zone (04/01/16 rates) Bldg- $250,000 Contents- $100,000; Primary Residence, Single-story with no basement, crawlspace or enclosure rates; Zone AE; $2K deductible Bldg./Contents 87 38
Napa, CA Rating Case Study Single family dwelling with detached garage 2-story home - no basement Built in 1995 in Napa, CATX Post-FIRM construction Flood Zone AE +1 Elevation Difference $250,000 Building $100,000 Personal Property Minimum deductibles Let me get back to you with a quote! Key Takeaways Pre and Post-FIRM determinations can be made using the NFIP Community Status Book. Elevation difference is defined as the difference between a building s lowest floor and the Base Flood Elevation. FEMA Elevation Certificates are required when using full-risk rates on buildings in Special Flood Hazard Areas. Reform legislation limits individual premium increases to 18% annually with some select exceptions, but there are additional fees and surcharges that could cause the total amount paid to exceed 18%. 39
Rich Slevin rich@h2opartnersusa.com Contact Info Melanie Graham melanie@h2opartnersusa.com Rich Waalkes rwaalkes@h2opartnersusa.com Sonja Wood sonja@h2opartnersusa.com Aaron Montanez producer@h2opartnersusa.com 91 Thank you for attending! 92 40