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Flood Insurance 101

Flood Insurance 101. Bill Massey and Sam Crampton Dewberry. South Florida Water Management District Floodplain Management Training May 2005. NFIP Is A Quid Pro Quo Program.

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Flood Insurance 101

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  1. Flood Insurance 101 Bill Massey and Sam Crampton Dewberry South Florida Water Management District Floodplain Management Training May 2005

  2. NFIP Is 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.

  3. Who Can Purchase Flood Insurance? • Any property owner in a NFIP participating community can purchase flood insurance. • Any eligible structure and its contents in any flood zone.

  4. Participating Community • Has adopted and agreed to enforce local floodplain management program. • Has adopted flood maps prepared by FEMA for use in regulating development in SFHA.

  5. Flood Insurance Availability • Flood insurance may be sold by any state-licensed insurance agent. • More than 19,000 participating counties, cities, towns, tribal governments and native villages.

  6. Pays without a presidential disaster declaration Provides coverage Allows quicker flood loss recovery Puts the property owner in control Available only after presidential declaration Most disaster assistance for repairs is an SBA loan Loan must be repaid with interest Loan is in addition to the existing mortgage Flood Insurance vs. Disaster Assistance Flood Insurance Disaster Assistance

  7. NFIP Insurable Interests • Manufactured homes, travel trailers • Anchored to a permanent foundation • Attached to utilities • Walled and roofed structures • Principally above ground • Not over water • Buildings in the course of construction • Contents of an insurable structure

  8. What’s Not Insurable • Buildings entirely over water • Buildings principally below ground • Manufactured homes and travel trailers not anchored to a permanent foundation • Motorized vehicles (RVs, cars, motorcycles) • Gas and liquid storage tanks • Contents, machinery, equipment in the open • Swimming pools, hot tubs/spas (not located in a bathroom) and associated equipment

  9. Special Flood Hazard Area The area on a FHBM or a FIRM which is subject to the Base Flood. The darkly shaded areas are shown as zones A, AO, AH, A1-30, AE, A99, V, V1-30, and VE. Base Flood The flood having a 1% probability of being equaled or exceeded in any given year. Definitions

  10. Definitions (Continued) • Flood “A general and temporary condition of partial or complete inundation of two or more acres of normally dry land areas or of two or more properties from (1) overflow of inland or tidal waters (2) unusual and rapid accumulation or runoff of surface waters (3) mudflows caused by flooding.”

  11. Two Program Phases • Emergency • Flat Rates • Limited Coverage • Flood Hazard Boundary Map • Regular • Actuarial Rates • Additional Coverage • Flood Insurance Rate Map

  12. Building / Contents Coverage • Building coverage is required by the mortgage lender. • Contents coverage is NOT automatic! • Renters can buy just contents coverage.

  13. Factors Used For Rating • Amount of insurance • Lowest floor elevation/ base flood elevation • Location – flood zone • Building type • Foundation type • Age of construction (pre-FIRM or post-FIRM)

  14. Pre-FIRM vs. Post-FIRM • Pre-FIRM: structure constructed prior to community’s initial flood insurance rate map (FIRM) or before 12/31/74 • Post-FIRM: structure built or substantially improved after the initial FIRM or after 12/31/74

  15. Limits of Coverage BuildingsEmergencyRegular Single Family $ 35,000 $250,000 Other Residential $100,000 $250,000 Non-Residential $100,000 $500,000 Contents EmergencyRegular Residential$ 10,000 $100,000 Non-Residential $100,000 $500,000

  16. Policy Effective Dates • Waiting period • 30 days - standard • Same day - loan closing • 1 day - required by lender due to flood map change

  17. Basement or Enclosure Coverage • Basement - below grade on all sides • Restrictions in coverage apply • Limited building machinery and equipment is covered

  18. Limited Coverage for Basements or Enclosures • Foundation elements • Specific items - Furnaces - Water heater - Circuit breaker boxes - Washers & dryers - Food freezers - Air conditioners - Heat pumps - Water softeners

  19. Preferred Risk Policy • B, C, or X Zone on current FIRM • Provides combinations of building and contents coverage • Reasonably priced ($106-$326) • Rate includes Federal Policy fee & ICC • No expense constant charged

  20. Residential Condominium Building Association Policy • Covers Building and Common Areas • $250,000 X Number of Units • Co-Insurance Provision applies if building is not insured to 80 % of value or more • Coverage also available for individual units and contents

  21. Flood Insurance Pays • Actual Cash Value (ACV) • ACV = Replacement Cost - Depreciation • Only exception • Primary residences insured to 80% or more of value have Replacement Cost Coverage (RCV)

  22. Standard Pre-FIRM $1,000 Post-FIRM $ 500 Optional Up to $5,000 Reduces premium Increase anytime Decreased only at renewal Must have lender’s approval Deductibles

  23. Pre FIRM Structure BFE 10 NGVD LOWEST FLOOR 5’ NGVD Pre-FIRM Premium A Zone $595 V Zone $845 (Includes all fees & ICC)

  24. 2001 FLOOD BFE 10 NGVD LOWEST FLOOR 5’ NGVD STRUCTURE SUBSTANTIALLY DAMAGED Damage = $75,000 Market Value = $100,000

  25. 2001 - Structure Repaired - Not Elevated BFE 10 NGVD LOWEST FLOOR 5’ NGVD Re-rated as Post-FIRM Actuarial Premium= AE Zone $4,140 VE Zone $8,205 (Includes all fees & ICC)

  26. Elevated to BFE BFE 10 NGVD LOWEST FLOOR 10’ NGVD Re-rated as Post-FIRM Actuarial Premium= AE Zone $431 VE Zone $1,136 (Includes all fees & ICC)

  27. LOWEST FLOOR 12’ NGVD BFE 10 NGVD Re-rated as Post-FIRM Actuarial Premium= AE Zone $266 VE Zone $640 (Includes all fees & ICC) Elevated 2 ft. above BFE

  28. BFE 10 NGVD LOWEST FLOOR 8’ NGVD Post FIRM Re-rating Actuarial Premium= AE Zone $1,465 VE Zone $1,760 (Includes all fees & ICC) Elevated 2 ft.belowBFE

  29. 299 sq ft BFE 10 NGVD LOWEST FLOOR 10’ NGVD Post FIRM Rating Actuarial Premium VE Zone $1,370 (Includes all fees & ICC) V-Zone - enclosure with breakaway walls, <299 sq. ft.

  30. 300 sq ft BFE 10 NGVD LOWEST FLOOR 10’ NGVD Post FIRM Rating Actuarial Premium VE Zone $1,630 (Includes all fees & ICC) V-Zone - enclosure with breakaway walls, > 300 sq. ft.

  31. How Are Approximate Zone A Structures Rated?

  32. Approximate A Zone Rating • Structure Not Elevated; No Elevation Certificate -- $$$$ • Elevate 2 or more feet above Highest Adjacent Grade (HAG) -- $$ • Elevate to or above estimated BFE -- $

  33. Variances and Rating • An elevation variance does not waive: • risk-based rates • mandatory purchase requirements • A structure built one foot below BFE may triple the cost of flood insurance • Structures built two or more feet below BFE require “submit-to-rate”

  34. SECTION 1316 OF THE NATIONAL FLOOD INSURANCE ACT OF 1968 "No new flood insurance coverage shall be provided …for any property which…has been declared by a duly constituted body, to be in violation of State or local laws, regulations, or ordinances which are intended to discourage or otherwise restrict land development or occupancy in flood-prone areas."

  35. Declaration Of Violation Includes • Name and address of property owner • Description of property • Cited declaration of violation • Statement of authority • Notice of violation • Evidence of adherence to Section 1316

  36. Effects Of Section 1316 • Non-availability of flood insurance for structure • Possible mortgage foreclosure • Denial of disaster assistance for repair of structural damage • Reduction in property value and marketability • Risk of flood damage without compensation

  37. FEMA 186 / September 1999

  38. Mandatory Purchase of Flood Insurance • Flood Disaster Prevention Act of 1973 • Flood insurance purchase is required to make, increase, extend or renew any loan secured by property located in a SFHA • Flood insurance required for the life of the loan

  39. Mandatory Purchase of Flood Insurance • Flood Insurance Reform Act of 1994 • Established penalties for lender non-compliance • Requires lenders to review revised FIRMs • Requires borrower notification and mandatory purchase when revised FIRM shows property is in SFHA • If escrow account is established, requires escrow for flood insurance

  40. Guidelines For Federally Backed Mortgages, When building located in a SFHA is used as loan collateral, Flood Insurance is required for the life of the loan!!!

  41. FIRM Is Revised, BFEs Increase – How Is Flood Insurance Rated? Structure built in compliance with earlier FIRM may be rated with the earlier FIRM if: • Structure has had continuous flood coverage, or • Community confirms building was built in compliance with earlier FIRM and has not been altered to make it non-compliant

  42. FIRM Is Revised, BFEs Decrease -How Is Flood Insurance Rated? Structure may be either • Rated using the old FIRM, or • Rated using new FIRM -- BFE decreased and flood insurance premium would be reduced

  43. Pre-FIRM – How to Rate It? Pre-FIRM structure has the option • Use Pre-FIRM rate – no elevation certificate required OR • Use Post-FIRM risk-based rates – elevation certificate required

  44. Flood Zone Determinations Special Flood Hazard Determination Form

  45. el14 ZONE AE el13 WATER CREEK FLOOD PARK el12

  46. Standard Flood Hazard Determination LENDER NAME AND ADDRESS COLLATERAL LENDER ID NUMBER LOAN IDENDIFIER AMOUNT REQUIRED

  47. Community Rating System • Provides incentive for communities to implement programs that exceed NFIP minimum criteria • Voluntary program that gives flood insurance premium credits for activities undertaken to • Reduce flood losses • Facilitate accurate insurance rating • Promote the awareness of the benefits of flood insurance

  48. CRS Application Process To apply, a community must • Complete the Application Worksheets, and • Submit documentation that CRS activities are being implemented FEMA Region and State NFIP Coordinator and ISO review the CRS application

  49. CRS Application Process FEMA and ISO • Verify information and community's implementation of activities • Set credit to be granted, and • Notify community, State, and insurance companies of CRS discount

  50. National Flood Insurance ProgramIncreased Cost of Compliance (ICC) National Flood Insurance Reform Act of 1994 September 24, 1994 “The National Flood Insurance Program shall enable the purchase of insurance to cover the cost of compliance with land use and control measures established under Section 1361.”

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