W-39: Private Flood Insurance- Practical Issues

1. W-39: Private Flood Insurance- Practical Issues Presenters: Greg Deimling, CPCU, ARM, CRIS, AMIM Lauri Lydecker, CRCM Ed Pasterick, FEMA

2. Private Flood Insurance – Practical Issues Private Flood Insurance Everything you need to know in 90 minutes An Open Discussion between Greg, Lauri, Ed and YOU, the attendee Questions taken anytime - between us we will discover the answers!

3. KNOWING YOU • Legal or Administrative • Lawyers, managers, supervisors, corporate • B. Lenders / Compliance • C. Production / Marketing • Producers, agents, brokers, marketing area • D. Underwriting / Loss Control • E. Others-not included above

4. Private Flood Insurance – The Mandate • Lender Requirements • Availability • NFIP AVAILABLE • NFIP NOT AVAILABLE • Suitability

5. Private Flood Insurance – The Criteria • FEMA CRITERIA • Licensure • Surplus Lines Recognition • Cancellation / Non Renewal Notice • Policy Coverage • Mortgage Clause • Legal Recourse

6. Private Flood Insurance – The Carrier • Financial Condition • State Insurance Departments • Admitted vs. non-admitted insurers • State insurance guaranty funds

7. Private Flood Insurance – Cancellation • Cancellation and Non-Renewal Provisions • Perceived increases in risk • Loss activity • Advance notification – borrower / lender • Information about NFIP coverage availability

8. Read the Policy – Breadth of Coverage • THE DEVIL • IS IN THE DETAILS 8

9. NFIP Flood Definition Flood, as used in this flood insurance policy, means: 1. 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 (at least 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 2. Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined in A.1.a. above. 9

10. ISO CP 10 30 Flood Definition g. Water (1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not; (2) Mudslide or mudflow; (3) Water that backs up or overflows from a sewer, drain or sump; or (4) Water under the ground surface pressing on, or flowing or seeping through: (a) Foundations, walls, floors or paved surfaces; (b) Basements, whether paved or not; or (c) Doors, windows or other openings. But if Water, as described in g.(1) through g.(4) above, results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage. 10

11. Water Definition • Company A – Form 1 • 14. Water Damage means accidental discharge or leakage of water or steam as the direct result of the breaking or cracking of any part of a system or appliance containing water or steam. • Company A – Form 2 • 9. WATER DAMAGE All water damage, except damage caused by or resulting from the peril of FLOOD. 11

12. Company A Exclusions e. Water (1) Flood, Surface water, wave, tides, tidal wave. overflow of any body of water or their spray, whether driven by wind or not; (2) Mudslide or mudflow: (3) Water which backs up from a sewer or drain; or (4) Water under the ground surface pressing on, or flowing or seeping through; • (a) Foundations, walls, floors, or paved surfaces; • (b) Basements, whether paved or not; or • (c) Doors, windows, or other openings. But we will pay for direct “loss” caused by or resulting fire or explosion. This Exclusion does not apply to property in transit. 12

13. Private Carriers Flood Definition • Definition of Flood – Carrier A • Flood, including surface water. But if loss or damage from fire explosion or leakage from fire protective equipment results, we will pay for that resulting damage. 13

14. Private Carriers Flood Definition • Definition of Flood – Carrier B • Flood means the overflow from a stream or any other body of water. • Flood also means surface water, waves, tidal waves or movements or spray from any of these, whether driven by wind or not. 14

15. Private Carriers Flood Definition • Definition of Flood – Carrier C A condition of inundation of normally dry areas, including dewatered areas, that results from; • A. Rainfall and resultant runoff, rising water, surface water, storm surge, waves, tidal water, tidal wave or tsunami, all whether driven by wind or not, and/or; • B. The overflowing of any breach of streams, rivers, lakes, reservoirs or other bodies or water; or spray from any of the foregoing, all whether driven by wind or not. 15

16. Private Carriers Flood Definition Definition of Flood – Carrier D FLOOD· means: A. A general and temporary condition of partial or complete inundation of normally dry land areas, including dewatered areas, from: • The rising, overflow, or expansion beyond normal boundaries of any body of water or watercourse, whether such body of water or watercourse is natural or man made; • The release or breaking of the boundaries of natural or man-made bodies of water or watercourses including the release or overflow of any water impounded by a dam, dike, reservoir or any other barrier or diversionary device; • Tsunami, waves, tide or tidal waters; • The unusual and rapid accumulation or runoff of surface waters from any source; • Mudslides or mudflows where mudslide or mudflows means a river of liquid and flowing mud on the surfaces of normally dry land areas, as when earth is carried by a current of water and deposited along the path of the current; or the spray from any of the foregoing, whether driven by wind or not. B. Direct physical loss or damage by fire or explosion resulting from Flood as defined above, will not be considered loss by Flood within the terms and conditions of this policy. 16

17. Private Flood Insurance – Policy Coverage • Limits of Insurance • NFIP vs. private – Advantages • Higher limits • Additional coverages • Excess coverage • Potential disadvantages • Per loss and aggregate limits

18. Private Flood Insurance – Policy Coverage • Specific vs. Blanket Insurance • Multiple properties • Proximity of locations • Loss limits

19. Private Flood Insurance – Policy Coverage • Flood as a Sub-Limit • Flood limits may be lower • Sub-limits may not be shown on evidence of coverage document

20. Loss Settlement – Policy Coverage • NFIP • Actual Cash Value • Replacement Cost • Private • Actual Cash Value • Replacement Cost • Functional Replacement 20

21. Private Flood Insurance – Exclusions • Flood Zone Exclusions • Always read the policy Exclusions and the Flood Endorsement document • NFIP’s “Reduction and Reformation of Coverage”

22. Private Flood Insurance – Exclusions Flood Zone Exclusions - Example “Flood coverage provided by this endorsement does not apply to any property located in the following flood zones, as determined by the Federal Emergency Management Agency’s flood insurance rating maps: V, V-1 through V-30, VE or VO.”

23. Private Flood Insurance – Waiting Periods • Waiting Periods • Many private policies – less than standard NFIP 30-days • Lender-required policies

24. Private Flood Insurance – Policy Breadth • Deductibles • Breadth of coverage requirements • Deductibles equal to NFIP maximum • Percentage deductibles • % of coverage / % of loss • Borrower’s financial condition

25. Private Flood Insurance – Other Insurance • “Other Insurance” Clauses • Primary or Excess policies • Payouts – Pro rata or Excess • Only in excess of NFIP maximum

26. Private Flood Insurance – Other Insurance “Other Insurance” Clauses - Example “We will pay that portion of the loss which is in excess of the greater of the applicable limit of the primary flood insurance for the covered property; or the maximum coverage limit available through the National Flood Insurance Program (NFIP). No loss proceeds will be paid until the primary insurer has paid their full limit of insurance for the covered property.”

27. Private Flood Insurance – Mortgage Clause • The Mortgage Clause • Continuing coverage regardless of acts or neglect by the insured • SFIP – 30 days from Notice • Private – May not extend past the policy expiration date

28. Private Flood Insurance – Legal Recourse • Legal Action Clause • NFIP – 1 year from claim denial or payment • Private policies – State requirements

29. Private Flood Insurance • Regulatory Examinations • Review of General Practices and Procedures • Proof of submission for “Notice to Borrower” Form • Timing of requirements for notices • Proper Coverage Amount 29

30. Private Flood Insurance • Regulatory Examinations • Review of Procedures for addressing reclassification by flood map revisions • Exercises forced placement • Review contractual obligations 30

31. Private Flood Insurance • Regulatory Penalties Required • Place Insurance • Escrow Flood Insurance Premiums • Failure to provide Notice Requirements • Force place the insurance 31

32. Private Flood Insurance • The Aggrieved Borrower • Flood Damaged Property in SFHA • No Coverage in Place • Cause of Action Against the Lender 32

33. Private Flood Insurance • Condominium • Association vs. Unit Owner • Maximum Limit Available • Duplicate coverage 33

34. Private Flood Insurance – Wrap Up • Private Flood Policy Considerations • MPG 6 item “checklist” • Are “shortcomings” significant? • Private insurance market does have a roll • Excess, Non-participating communities • Lender’s ultimate responsibility to confirm suitability

35. Private Flood Insurance 35

36. Thank You