1 “Flood Facts for 2007” David Thompson Florida Association of Insurance Agents...

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“Flood Facts for 2007”

David Thompson

Florida Association of Insurance Agents

[email protected]

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HOUSEKEEPING INFO

• Class times: 8:15 a.m. to 12:00 p.m.

• 10 minute break each hour

• Restroom locations

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DFS Rule # 69B-228.060(5)(c) Prohibits…

• Sleeping;• Reading of non-course books, newspapers, or

other non-course material;• Using a cellular phone or other electronic

device except to take class notes or to complete mathematical exercises;

• Leaving the class other than during authorized breaks.>

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Unauthorized Entity Issues

• Appropriate pages in the back of your textbook.

– DFS Help Line: 1-800-342-2762

– DFS Web Page: www.fldfs.com

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FAIA Web Page

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Links to This Class

• Go to www.faia.com

• Click on “Education”

• Click on “Flood Facts for 2007 Links” >

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The Lingo

• SFHA: Special Flood Hazard Area– Flood zones A, V (Grey map areas)– Non-SFHA Zones: B, C, X (While map areas)

• BFE: Base Flood Elevation• SFP: Standard Flood Policy• PRP: Preferred Risk Policy• RCBAP: Residential Condominium Building

Association Policy• ICC: Increased Cost of Compliance >

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NFIP Required Training

• Federal requirement

– Flood Insurance Reform Act of 2004

– Establish minimum training and education requirements for all insurance agents who sell flood insurance policies

• State enforcement

– No such requirement in Florida CE law

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Statistics

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Most Costly Disasters ????

• Katrina - $15.7B ($95K average loss)

• Ivan - $1.5B ($54K average loss)

• T.S. Allison - $1.1B ($36K average loss)

• Isabel - $472M ($24K average loss)

• Floyd - $462K ($22K average loss)

• Rita - $432M ($47K average loss)

• Andrew - $169M ($30K average loss) >

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Policies per State – Most ???

• #1: Florida – 2,100,000

• #2: Texas – 615,000

• #3: Louisiana – 483,000

• #4: California – 269,000

• #5: New Jersey – 210,000

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Policies per State – Least ???

• #46 – Vermont 3,163

• #47 – South Dakota 3,142

• #48 – Alaska 2,565

• #49 – Wyoming 2,406

• #50 – District of Columbia 1,463

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NFIP History &Community Participation

• Established in what year????– 1968– Who was elected President then?

• Richard Nixon• Communities must agree to floodplain

management• How many communities participate???

– Over 20,000 >

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NFIP History

• Program revised in 1994

– Current $250K max was what???

• $185K

– Current 30-day wait was what?

• 5 days

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Emergency Program

• Initial phase; No FIRMs

• Higher rates

• Limited coverage

– $35,000/$10,000 1-4 family

– $100,000/$10,000 other residential

– $100,000/$10,000 other

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Regular Program

• FIRMs in place

• Actuarially sound rates

• Coverage available

– $250,000/$100,000 all residential

– $500,000/$500,000 non-residential

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Community Rating System

• Voluntary system

• Class 1 (45%) to class 9 (5%)

• 1,049 communities participate (67% of policies benefit)

• Only class 1 city. ????

– Roseville, CA

– In case you want to move there…..

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Eligible Buildings

• Two or more outside rigid walls

• Fully secured roof

• 51% or more above ground level

• Mobile homes affixed to permanent foundation (No weight on wheels). Must be anchored if in SFHA

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Ineligible Buildings

• Silos/cisterns

• Buildings over water – 10/1/82 date

• Course of construction – 90 day rule

• 51% or more underground

• Basement/Elevated building enclosures

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Ineligible Buildings

• In violation of floodplain management

• Over water, built after 10/1/82

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Coastal Barrier Resource Act

• Passed in 1982

• Restricts federal financial assistance

• Two dates:

– 1983 & 1990

• Newly built or substantially improved buildings ineligible for flood coverage

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Who Needs Flood Insurance?

• Everyone who doesn’t sign a waiver!

• 20% to 30% of flood losses are paid to people who are “not in a flood zone”

>

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Mandatory Purchase of Flood Insurance

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Mandatory Purchase of Flood Insurance

• Applies to federally regulated lenders• SFHA risks• The amount of flood insurance must be at

least equal to the outstanding principal balance of the loan or the maximum amount of coverage made available under the 1994 Reform Act for the particular type of property, whichever is less. >

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The NFIP policy does not provide coverage for losses to unimproved real estate, i.e., raw land. The lending regulations provide that … flood insurance coverage under the NFIP is limited to the overall value of the building. Accordingly, a lender must evaluate the amount of coverage required in relation to the portion of the loan that is associated with the improved real estate (excluding the appraised value of the land), or the maximum amount of insurance available under the NFIP, whichever is less.

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This is especially significant in cases where the loan exceeds the value of the insurable building(s). Where the outstanding principal balance of the loan exceeds the value of the building, the lender should exclude the value of the land in determining the amount of coverage needed. When the lender does not take into account separate valuations of land…and improvements… the insured may be paying for coverage that exceeds the amount the NFIP will pay in the event of a loss. Lenders should avoid creating such a situation.

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Mandatory Purchase

• No coverage if land only loan

• Course of construction – coverage must be effective when construction starts

• Coverage required for home equity loans>

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Mandatory Purchase

• Lender is free to require coverage outside SFHA

• Lender penalties for failure to make certain coverage is in effect:– Per incident fine

• $385 (Increasing to $2,000 in 2007)– Annual max

• $125,000 >

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Mandatory Purchase

• 30 day wait except:– Initial purchase in connection w/loan

• Zone is not a factor• Refinancing, 2nd mortgages also qualify

for no wait– Initial purchase at re-mapping

• Must escrow flood if taxes & hazard are also escrowed >

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Mandatory PurchaseCondominiums

• A unit owner’s mortgage lender has no direct interest in an RCBAP and is not to be named an additional named insured.

• Supply unit owner’s lender with copy of RCBAP

• When unit owner is and is not required to buy coverage to meet lender guidelines…

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• Example #1:

– 10-unit condo

– $2 million replacement cost

– RCBAP coverage amount: $2 million. (No problem w/$250K x # of units)

– No unit owner coverage required…RCBAP insured to value

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• Example #2:

– 10-unit condo


– RCBAP coverage amount: $2.5 million….max available under NFIP

– No unit owner coverage required. $250,000 per unit limitation.

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• Example #3:

– 10-unit condo


– RCBAP coverage amount: $1.6m (Suffices for 80% coinsurance)

– $400K shortfall…$40K per unit can be required by lender

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Loss Assessment & Condo Unit Owner Coverage

(Pages 19/20)

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Condo Unit Owner Coverage (19)

• 5. If you are the owner of a unit and have insured personal property under Coverage B in this policy, we will also cover your interior walls, floor, and ceiling (not otherwise covered under a flood insurance policy purchased by your condominium association) for not more than 10 percent of the limit of liability shown for personal property on the Declarations Page. >

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Condo Unit Owner Coverage

• 10% of Coverage B built in for building items

• Increase the 10% via building coverage

• Reasons to have building coverage

– No master policy in place

–Loss assessment >

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Condo Loss Assessments (20)

• Only for condos, not for other HOAs

• Loss must be from flood, to the building’s common elements

• Not all assessments covered….. >

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Assessments Not Covered (20)

• Resulting from an association deductible

• Losses to association personal property

• Buildings insured to less than 80% of value

• If the assessment coverage plus the amount paid by the master policy benefits a resident for more than $250,000

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Assessments Covered

• Examples:

– No master policy in place.

– Damage to a non-insured building (Up for debate)

– Building insured to 80%, total loss. – Assessment made for the 20%.

>

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Damage to Non-Insured Building

• From the NFIP manual, page CONDO 7

– The Dwelling Form will respond, up to the building coverage limit, to assessments against unit owners for damages to common areas of any building owned by the condominium association, even if the building is not insured,

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Before You Tell the Condo Dweller not to Buy Coverage…..

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How Would You Like This to be Your Name in Lights??

• Leonard v. Nationwide

• Hurricane Katrina “wind vs. flood” lawsuit

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Judge Rules in Favor of Insurer in Mississippi Wind vs. Water Case (8/15/06)

The Leonards filed suit against Nationwide, their homeowners insurer, after the company paid them around $1,660 for wind damage to their home that resulted from Hurricane Katrina. They had claimed that their insurance agent, Jay Fletcher …had represented that all wind and water damage arising out of a hurricane would be covered by their insurance policy.

The Leonards, who did not carry flood insurance on their house, also claimed that Fletcher told them they did not need it.

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From the judge’s written opinion

Fletcher sometimes discouraged his clients from purchasing flood insurance policies. That much is clear from the testimony of a variety of witnesses, including Fletcher’s office assistant, Cindy Byrd Collins. There was enough evidence on this point to warrant the conclusion that Fletcher, as a matter of habit and routine, expressed his opinion, when he was asked, that customers should not purchase flood insurance unless they lived in a flood prone area (Flood Zone A) where flood insurance was required in connection with mortgage loans.

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Non-SFHA Zones

• 20% to 30% of claims come from non-SFHA policies

• Customer comment:

– “Am I in a flood zone.”

• Agent response:

– “When you crossed the state line into Florida, you entered a flood zone.” >

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Flood Insurance vs. Disaster Assistance

• Made simple:

– Flood insurance

• You get to keep the money

– Disaster assistance

• You pay the money back>

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SBA Loans/Aid

• Per USA Today on 10/18/05…

• Six weeks after Katrina, 58,000 applications for aid received….

• 1,049 processed….

• 58 checks issues….for $533,000 >

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Flood Maps & Zone Determinations

• http://msc.fema.gov

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Flood Hazard Boundary Maps(FHBM)

• For Emergency Program communities

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Flood Insurance Rate MapsFIRM

• Regular Program communities

• Official source of flood risk data

• Show zones, BFE, base flood depths

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Pre-FIRM & Post-FIRM

• Pre-FIRM

– Built before effective date of first Flood Insurance Rate Map

• Post-FIRM

– Built after effective date of first Flood Insurance Rate Map

– Compare lowest floor to BFE for rating

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Special Flood Hazard Area(SFHA)

• What the customer calls “a flood zone”

• Area where NFIP floodplain regulations must be enforced

• Area where mandatory purchase applies

• Zones A & V

• 26% chance of flooding over a 30-year mortgage

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Base Flood Elevation (BFE)

• The computed elevation to which floodwater is anticipated to rise during the base flood

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Flood Zone Determination Companies

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Three Policies (4)

• 1. Dwelling

• 2. General Property

• 3. RCBAP

• Preferred Risk Policy (PRP)

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Dwelling Form (4)

• Eligibility

– 1-4 dwellings with permitted incidental occupancies

– Dwelling unit in a condominium

– Residential rowhouse/townhouse

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General Property Form (4)

• 5+ family residential

• Non-residential buildings

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Residential Condominium Building Association Policy

(RCBAP) (4)

• Regular program only

• 75% or more space used for residential purposes

• If the risk qualifies for the RCBAP, that policy must be used

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Preferred Risk Policy (4)

• B, C, X zones only; must remain in these zones at renewal

• Residential limits

– $250,000/$100,000

• Non-residential limits

– $500,000/$500,000

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Preferred Risk PolicyLoss History

• Short version of ineligibility:

– Two or more claims or federal disaster aids may disqualify you from PRP

– Dollar amount are a factor

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SFP to PRP

• Can go back six years to convert SFP to PRP

• Why convert???

– $250,000/$100,000 policy

• PRP: $317

• SFP: $950

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Dwelling Policy Analysis(Page 15)

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Eligibility (15)

• 1-4 family dwelling; or

• Residential condo unit

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II. Definitions (15)

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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

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Two Acres or Two Premises (15)

• If water covers at least two acres – covered.

• If water touches two properties – covered. Not necessary for two structures to be damaged.

• Water confined to your premises, must cover at least two acres.

>

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Basements (16)

• 5. Basement. Any area of the building, including any sunken room or sunken portion of a room, having its floor below ground level (subgrade) on all sides.

• Coverage for property in a basement is very limited!

>

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6. Building. (16) a. A structure with two or more outside rigid walls and a fully secured roof, that is affixed to a permanent site;

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Described Location (16)

• 11. Described Location. The location where the insured building(s) or personal property are found. The described location is shown on the Declarations Page.

>

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Dwelling (16)

• 13. Dwelling. A building designed for use as a residence for no more than four families or a single-family unit in a building under a condominium form of ownership. >

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III. Property Covered (17)

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Coverage A – Building Property (17)

• We insure against direct physical loss by or from flood to:

• 1. The dwelling at the described location, or for a period of 45 days at another location as set forth in III.C.2.b., Property Removed to Safety. >

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Other Structures (17)

• 3. A detached garage at the described location. Coverage is limited to no more than 10 percent of the limit of liability on the dwelling. Use of this insurance is at your option but reduces the building limit of liability. We do not cover any detached garage used or held for use for residential (i.e., dwelling), business, or farming purposes. >

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Under Construction (17)

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5. A building under construction, alteration, or repair at the described location. a. If the structure is not yet walled or roofed as described in the definition for building (see II.B. 6.a.) then coverage applies: (1) Only while such work is in progress; or (2) If such work is halted, only for a period of up to 90 continuous days thereafter.

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#7. Building Items (18)

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7. The following items of property which are covered under Coverage A only: a. Awnings and canopies; b. Blinds; c. Built-in dishwashers; d. Built-in microwave ovens;

e. Carpet permanently installed over unfinished flooring;

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f. Central air conditioners; g. Elevator equipment; h. Fire sprinkler systems; i. Walk-in freezers; j. Furnaces and radiators; k. Garbage disposal units;

l. Hot water heaters, including solar water heaters;

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m. Light fixtures; n. Outdoor antennas and aerials fastened to buildings; o. Permanently installed cupboards, bookcases, cabinets, paneling, and wallpaper; p. Plumbing fixtures; q. Pumps and machinery for operating pumps;

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r. Ranges, cooking stoves, and ovens; s. Refrigerators; and t. Wall mirrors, permanently installed. >

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Items Below The Lowest Elevated Floor (18)

• 8. Items of property in a building enclosure below the lowest elevated floor of an elevated post-FIRM building located in Zones A1-A30, AE, AH, AR, AR/A, AR/AE, AR/AH, AR/A1-A30, V1-V30, or VE, or in a basement, regardless of the zone. Coverage is limited to the following:

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(1) Central air conditioners; (2) Cisterns and the water in them; (3) Drywall for walls and ceilings in a basement and the cost of labor to nail it, unfinished and unfloated and not taped, to the framing; (4) Electrical junction and circuit breaker boxes; (5) Electrical outlets and switches; (6) Elevators, dumbwaiters, and related equipment, except for related equipment installed below the base flood elevation after September 30, 1987; (7) Fuel tanks and the fuel in them;

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(8) Furnaces and hot water heaters; (9) Heat pumps; (10) Nonflammable insulation in a basement; (11) Pumps and tanks used in solar energy systems; (12) Stairways and staircases attached to the building, not separated from it by elevated walkways; (13) Sump pumps; (14) Water softeners and the chemicals in them, water filters, and faucets installed as an integral part of the plumbing system; (15) Well water tanks and pumps; (16) Required utility connections for any item in this list; and (17) Footings, foundations, posts, pilings, piers, or other foundation walls and anchorage systems required to support a building.

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Items Below The Lowest Elevated Floor

• Examples of what’s not covered:– Paint on drywall– Wallpaper– Carpet– Paneling– Ranges & ovens– Refrigerators

>

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Property CoveredCoverage B – Personal Property (18)

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B. COVERAGE B - PERSONAL PROPERTY (18) 1. If you have purchased personal property coverage, we insure against direct physical loss by or from flood to personal property inside a building at the described location, if: a. The property is owned by you or your household family members; and b. At your option, the property is owned by guests or servants. Personal property is also covered for a period of 45 days at another location as set forth in III.C.2.b., Property Removed to Safety.

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Coverage B Items (18)

• a. Air conditioning units, portable or window type;

• b. Carpets, not permanently installed, over unfinished flooring;

• c. Carpets over finished flooring;

• d. Clothes washers and dryers;

• e. "Cook-out" grills;

• f. Food freezers, other than walk-in, and food in any freezer; and

• g. Portable microwave ovens and portable dishwashers. >

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Personal Property Below the Lowest Elevated Floor or in a

Basement (18)

• Only the following:

– Air conditioning units, portable or window type;

– Clothes washers and dryers; and – Food freezers, other than walk-in,

and food in any freezer. >

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Personal Property Below the Lowest Elevated Floor or in a Basement

• None of the following is covered:

– Carpet

– Couch, chair, tables

– TV, stereo, computer

– Beds

– Clothing

– Any other personal property>

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Special Limits - $2,500 Total (19)

• a. Artwork, photographs, collectibles, or memorabilia, etc…

• b. Rare books or autographed items; • c. Jewelry, watches, etc… • d. Furs etc…• e. Personal property used in any business. • 7. We will pay only for the functional value of

antiques. >

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Debris Removal (19)

• a. We will pay the expense to remove non-owned debris on or in insured property and owned debris anywhere.

• b. If you or a member of your household perform the removal work, the value of your work will be based on the Federal minimum wage.

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Loss Avoidance Measures (19)

• $1,000 maximum

• Sandbags, sand, pumps, plastic sheeting, etc

• Your own labor at minimum wage rate

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Property Removed to Safety (19)

• $1,000 to protect from further damage

• Your labor paid at minimum wage rate

• Property covered at that location for 45 days, inside a fully enclosed building

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ICCIncreased Cost of Compliance (20)

• Complex issue

• Difficult for it to respond

• This is not “building code” coverage!!

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ICC

• $30,000 coverage limit (Text says $20,000)

• Additional insurance, but not above the $250,000 maximum

• Applies only when building coverage is purchased on the policy

• Does not apply to condo unit owner policies>

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ICC

• Property must be either:

– Substantially damaged, (50% or more of its market value); or

– A repetitive loss structure (2 or more flood losses in 10 years, each at 25% or more or market value)

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ICC

• ICC responds for:

– Elevating

– Floodproofing

– Demolition

– Relocation

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Property Not Covered (22)

• Personal property not inside a fully enclosed building

• Building located entirely over water

• Open structures – boathouses

• Recreational vehicles

• Self propelled vehicles (2 exceptions)

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Property Not Covered (23)

• Underground structures – septic tanks!

• Walkways, decks, driveways…located outside the perimeter walls

• Fences, seawalls, piers, docks!• Swimming pools

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Exclusions (23)

• Loss of revenue or profits

• Loss of access

• Loss of use

• Business income losses

• Additional living expense

• Ordinance & law other than ICC

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Deductibles (24)

• If under construction and no rigid walls and secured roof, deductibles are double

• Separate to building, separate to contents• No deductible for:

– Loss avoidance measures ($1,000 max)

– Condo loss assessment

– ICC >

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General ConditionsOther Insurance (25)

• NFIP is excess unless other policy is shown to be excess in which case NFIP is primary

• When writing excess flood it’s usually required to “max out” the NFIP policy

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Assignment (25)

• Policy may be transferred to another party when title to property is transferred.

• Avoids the 30-day wait

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Reduction and Reformation (25)

• Rating errors:

• 30 days to pay additional premium

• If additional premium is not paid, coverage is “adjusted down”

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Policy Renewal (26)

• A true “30-day grace period” to pay the premium.

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Duplicate Policies (30)

• Not permitted

• Avoids the ability to go above the maximum NFIP coverage limits available

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Loss Settlement (30)

• NFIP is ACV except:

– Some dwellings

– RCBAP

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Dwellings (30)

• ACV unless ALL the following apply

– Single family

– Owner occupied

– Principle residence (80% of 365 days)

– Insured to at least 80% of RC, or $250,000 on higher value dwellings

• Only the dwelling is RC; contents ACV >

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RC Settlement Problem

• ACV paid, until the money is actually spent on replacement

– FEMA has waived this in some disasters

• The Florida statute on “no holdback” does not apply to the NFIP

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The 180-Day Rule (31)

• You may disregard the replacement cost conditions above and make claim under this policy for loss to dwellings on an actual cash value basis. You may then make claim for any additional liability according to V.2.a., b., and c. above, provided you notify us of your intent to do so within 180 days after the date of loss.

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Other ACV Items (31/32)

• 2-3-4 family dwelling

• Detached garages

• Personal property

• Appliances, carpets, carpet pads

• Outdoor awnings and antenna

• Non-primary residences

• Mobile homes >

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Determining the Replacement Cost of the Dwelling (32)

• Do not include:

– Footings, foundations, piers

– Underground pipes, flues, wiring, and drains

• But note, these items are covered by the policy >

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General Property Form(Not in Text) (4)

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Direct Physical Loss

• Direct damage required

• Not covered

– Indirect damage (Business Income)

– Property on a higher floor not damaged

– Upper/lower cabinet example

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General Property FormOther Coverages

• As a tenant, 10% of Coverage B for TIB

• As a condo unit owner, 10% of Coverage B for walls, floors, and ceilings. (Note: No ability to purchase building coverage)

• No business income or ALE

• ACV settlement…ALWAYS

116

RCBAP

• Remember…

– F.S. 718.111(11) dealing with condominium insurance does NOT apply to NFIP

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RCBAP – Building Coverage

• The residential condominium building described on the Declarations Page at the described location, including all units within the building and the improvements within the units.

• RCBAP covers a lot more than the commercial property form does

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RCBAP – Building Coverage

• In the units within the building, installed:– (1) Built-in dishwashers;– (2) Built-in microwave ovens;– (3) Garbage disposal units;– (4) Hot water heaters, including solar water heaters;– (5) Kitchen cabinets;– (6) Plumbing fixtures;– (7) Radiators;– (8) Ranges;– (9) Refrigerators; and– (10) Stoves.

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RCBAP – Contents Coverage

• Contents owned in common by unit owners

• Owned solely by the condo association

• Covered at the insured location, inside a fully enclosed building…45 days elsewhere

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RCBAPProperty Not Covered

• Open structures

• Vehicles (exception)

• Land, trees, etc

• Decks outside perimeter walls of building

• Docks• Ordinance/law • Fences

• Retaining walls, seawalls

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RCBAPGeneral Provisions

• Coinsurance

– 80% or maxed out

• Only improvements installed by the association factor into the replacement cost estimates

• Include foundation in calculations

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• Replacement cost coverage on building:

– We will not be liable for any loss on a Replacement Cost Coverage basis unless and until actual repair or replacement of the damaged building or parts thereof is completed.

123


• ACV settlement on:

– Personal property

– Antenna

– Awnings

– Carpet & pad

– Appliances

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RCBAPDeductibles

• Standard deductible

– $500/$500

• Maximum deductibles permitted

– $25,000/$25,000

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Deductibles – Freddie Mac

• 1-4 unit properties– 5% max (except flood)

• PUDs/Condos– 5% max (except flood)

• Condo flood– Deductible may not exceed maximum amount

allowed under NFIP– 100% to value required

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General Rules & Underwriting

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Limits Available (5)

• Residential

– $250,000/$100,000

• Non-residential

– $500,000/$500,000

• RCBAP

– $250,00 x number of units, or replacement cost whichever is less

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Deductible Options (5)

• Residential; 1-4 family

– $5,000/$5,000 (.740 & .750 factor)

• Other residential/non-residential

– $50,000/$50,000 (.50 & .45 factor)

• RCBAP

– $25,000/$25,000 (.725 & .715 factor)

129

Insurance to Value (5)

• Coinsurance only in RCBAP

• Residential where RC applies

– Must insure to at least 80%, otherwise ACV is paid

• Include foundations in calculations for RCBAP. Not required to do so in dwelling policy

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Loss Settlement (5)

• ACV at all times except:

– Some single family residences

– RCBAP, if insured to value (80%)

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Reduction/Reformation (5)

• Discovered before a loss:– Bill sent; if paid within 30 days then the

originally requested amount is provided. If not paid, policy reformed.

• Discovered after a loss:– Same as above. Premium now collected

prospectively, not retrospectively. (FEMA Policy Issuance #1-2005)

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Binders (6)

• Binder--A temporary agreement between company, producer, and insured that the policy is in effect. Binders are not permitted under the NFIP

133

Binders/Evidence of Insurance

• Copy of the Flood Insurance Application and premium payment, or…

• Copy of the declarations page

• The NFIP does not recognize an oral binder or contract of insurance.

>

134

Waiting Period (6)

• 30-days with exceptions

• Wait is waived for the person/entity getting loan

– Condo unit owner vs. association

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Waiting Period (6)

• 30-day waiting period for new applications and coverage increases. (Exceptions)

• Application must be received within 10 days or mailed by certified mail (FEDEX UPS, also) within 4 days of date of application– If not received, the 30-days starts when

received by NFIP/WYO >

136

Waiting period30-Day Wait Exceptions

• New policy in connection with making, increasing, extending, or renewing a loan, whether conventional or otherwise.

• Lender determines a SFHA building should be covered by a flood policy.

• Flood map revised/building in SFHA• RCBAP if association is required to obtain flood

coverage as part of a loan in the name of the association.

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Waiting Period30-Day Wait Exceptions

• Standard flood policy to PRP rewrite.

– SFP must cover building and contents for no wait to apply under PRP.

• PRP to SFP rewrite.

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Waiting PeriodRequired Documentation

• Agent’s representation is “as good as gold” unless….

• …claim in first 30 days. Agent must supply proof of no wait

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Waiting PeriodGeneral Change Endorsements

• Can increase coverage, subject to 30-day wait.

• Can’t reduce or remove coverage except under certain circumstances

• Rating errors can be corrected back six years • Deductibles can be increased, but can not be

decreased >

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Waiting PeriodEndorsements

• 30-day wait for increased coverage applies except:

– Map revisions– In connection with a loan

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Waiting PeriodOther 30-Day Exceptions

• Renewal when the higher limit is selected

• PRP renewal at next higher level

• Reduction of deductible at renewal

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Policy Term (6)

• One-year

143

Cancellation (6)

• A flood policy may be cancelled at any time:

– Question is: “Do I get a refund?”• Refunds due in 23 situations

144

Most Common Reasons Where A Refund is Due

• Building sold or removed

• Contents sold or removed

• Common expiration date

• Duplicate policies

• Bad check to agent• No Closing• No longer required by

mortgagee• Mortgage paid off• Fraud

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Elevation CertificateWhen Required (6)

• 1/1/07 – New certificate must be used• Required for post-FIRM buildings in SFHA• Not required for pre-FIRM buildings, but

savings possible• Elevation Certificates must be prepared and certified by a

land surveyor, engineer, or architect who is authorized by commonwealth, state, or local law to certify elevation information. Community officials who are authorized by local law or ordinance to provide floodplain management information may also sign the certificate.

146

Map Grandfather Rule (6)

• Choice of:– Current map, or– Map in effect at construction date

• The building must have had continuous coverage, even in change of owners, if pre-FIRM. Post-FIRM must show building was built in compliance

• Grandfathering does not apply to PRP

147

Coastal Barrier Resource Act (6)

• Previously addressed

148

Course of Construction (6)


149

Single Building (6)

150

Single Buildings

• To qualify as a single building, a building must:

– Be separated by clear space, or…

– Be separated by solid, load-bearing, division walls

151

Single Building

• Advantages

– Write as one policy – one deductible

– Lower premium than separate policies• Disadvantages

– Subject to maximum limits– Higher limits available with multiple

policies >

152

Additions and Extensions (7)

• From the manual….

153

The NFIP insures additions and extensions attached to and in contact with the dwelling by means of a rigid exterior wall, a solid load-bearing interior wall, a stairway, an elevated walkway, or a roof.

At the insured’s option, additions and extensions connected by any of these methods may be separately insured.

154

Eligible/Ineligible Buildings (7)


155

Increased Cost of Compliance (7)


156

Buildings in More Than One Zone (7)

• Buildings, not the land, located in more than one flood zone must be rated using the more hazardous zone.

• This condition applies even though the portion of the building located in the more hazardous zone may not be covered under the SFIP, such as a deck.

157

Maps (7)


– http://msc.fema.gov

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LOMA (7)

• Used to show property not in SFHA

• May apply on line

• Fees: No charge for single-lot LOMA

• On line tutorial/application

– http://www.fema.gov/media/fhm/loma/ot_lmafl.htm

159

Helping the Client File a Claim (8)

161

Claim Appeal Process (8)

• 1. Talk to adjuster

• 2. Contact adjuster’s supervisor

• 3. Contact the insurance company’s claim representative

• 4. Contact FEMA in writing. (Address on web page)

162

Claims Handbook (8)

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Notification Requirements to the Policyholder Flood Insurance Reform Act of 2004 (8)

• New requirements on agents. Why? From FEMA…

• The reason that much of this language has come about is the perception among legislators that agents do not know that flood is excluded from property policies, do not know that there is a specialty program for flood, do not advise their clients of the flood risk and availability of flood insurance, and do not appreciate the limited nature of the flood insurance policy.

164

Notification Requirements to the Policyholder Flood Insurance Reform Act of 2004

• Point of Sale Responsibilities (Agent)– Policy exclusions that apply– Explanation regarding how losses will be

adjusted (ACV vs RCV)• FEMA

– Notification of coverages being purchased– Number and dollar amount of claims for

property address– Acknowledgement forms

165

Summary of CoverageExclusions That Apply

• http://www.fema.gov/library/viewRecord.do?id=1904

http://www.fema.gov/library/viewRecord.do?id=1904

http://www.fema.gov/library/viewRecord.do?id=1904

166

NFIP Letters & Publications Sent to the Policyholder

167

FEMA Letter to Policyholder

169

Claims HandbookSent by FEMA

171

Acknowledgment of ReceiptSent by FEMA (2 Copies)

173

Prior Loss History(Sent by FEMA)

175

Proposed Changes to NFIP (9)

•PROPOSED changes

– Not final• Passed by U.S. House

– HR 4973 Flood Insurance Reform and Modernization Act of 2006 (FIRM)

• U.S. status: Senate – “Dead in the water” (S. 3589)

176

Proposed Changes to NFIP

• Study feasibility of mandatory purchase by all risks in SFHA

• Study feasibility of mandatory purchase when non-federal lender involved

• Phase in “actuarially sound” rates for non-residential, pre-FIRM, and non-primary residential >

177


• Reduce 30-day wait to 15-days

• No wait for purchases without a loan

• Residential

– Increase building $250K max to $335K

– Increase contents $100K max to $135K

• Non-residential

– Increase $500,000K max to $670K

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• Include $1,000 of ALE– Make increased ALE available for purchase

• Basement coverage available for purchase• Business income coverage available for

purchase• Replacement cost on contents available for

purchase on all policies >

179


• Increase annual cap on premium increases from 10% to 15%

• Increased borrowing authority to $25B

180

Elevation Certificate (9)

• Training available:• http://training.nfipstat.com/portal2/default.asp

http://training.nfipstat.com/portal2/default.asp

181

Elevation Certificate

• Key points:

– The surveyor is being paid to do this form correctly

– Force him/her to do it right

– If it’s not done correctly, the agent is put in a spot where he/she does not want to be…in an E&O landmine field

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• New EC approved for use 2/13/06 through 2/28/09• Mandatory to use new EC 1/1/07• Certifier must provide area of enclosure below

elevated floor• Certifier must provide two photographs, digital or

3” x 3” minimum• Four pages in length, instructions are 16 pages!

>

183


• Refer to appendix, page 34

189

Elevation Certificate’s Role in Policy Rating

• Required for post-FIRM risks in SFHA• Optional for pre-FIRM risks in SFHA• Not required for B, C, or X zones

190

Enclosure

• That portion of an elevated building below the lowest elevated floor that is either partially or fully shut in by rigid walls.

191

Venting

• Permanent opening in a wall that allows the free passage of water in both directions, automatically, without human intervention.

• A window, a door, or a garage door is not considered an opening.

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Vents = A Zones

• Minimum of 2 vents or openings

• 1 square inch for every square foot of enclosure/crawl space

• Must be within 1 foot of grade

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V Zones = Breakaway Walls

• Not part of the structural support of the building

• Designed to collapse under specific lateral loading forces without causing damage to the elevated portion of the building or foundation system

194

V Zones

• Must be free of obstruction

• If enclosure greater than 300 square feet, different rates apply

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Lowest Floor

Section C3.a is lowest floor for (Diagrams 1-5)A zones, if M/E above BFE.

Section C3.b is lowest floor for (Diagrams 6-8) A zones, if enclosure/crawl space has proper openings.

196

Miscellaneous Issues

197

Non-NFIP Primary Coverage

198


• RC loss settlement

• Broader basement coverage

• Increased special limits ($5,000 vs. $2,500)

• $50,000 flood loss assessment coverage

• ALE/FRV coverage – no deductible

• Civil authority ALE – 30 days

• $5,000 for loss avoidance measures……

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• O&L and ICC coverage• Non-assignable policy• Higher deductibles for vacant homes• Subject to state regulation & statutes• Eligibility contingent upon carrier writing the

homeowners policy. HO cancels, so does flood…on same day!

• Fully earned premium if a claim occurs >

200

Excess Flood Products

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Excess Flood“Cool Features”

• $15 million limit

• Broader definition of “flood”

• Replacement cost loss settlement

• Broader basement coverage

• Increased coverage for high value items

• ALE & FRV

• Ordinance & law

202

Excess FloodCautions

• Underlying coverage must be in place

• Typically max NFIP limits are required

• Failure to maintain underlying results in gap in coverage

• Non-standard policy wording

203

CBRA Zones & Lenders

• Thoughts/Problems???

• NFIP provides no coverage

• Lender must still make certain flood coverage is in force

• Lender may:

– Accept non-NFIP product

– Decline the loan >

204

Zone Disputes

• Policyholder can dispute lender or 3rd party determination that risk is in SFHA

– LODR: Letter of Determination Review

– $80 fee, paid by policyholder

– Allow 8 weeks

• FEMA makes the final determination of zone

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Rating ErrorsRefund Processing Procedures

• WYO carrier – responsible for current and prior policy term

• NFIP Bureau refunds 3+ years, after documentation submitted

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Where to List the Lender as Loss Payee

• Thoughts???

• Options:

– List on RCBAP (No real interest, but it squelches the lender)

– List on unit owner policy

– List nowhere. (You drive the insurance bus) >

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Construction Loans

• To avoid 30-day wait, coverage must be effective at closing.

• Vacant land is eligible if owner intends to build on that land.

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FloodSmart Web Page

209

FloodSmart Agent Site(Free Registration Required)

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IIABA Virtual University(Free Registration Required)

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IRMI

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Trivia Time

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Trivia Question #1

• Spot the error on this FloodSmart web page:

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Trivia #2

• How much is the federal policy fee on the dwelling flood policy?

– $30.00

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Trivia #3

• Of participating communities in the Regular Program, what percent of single family dwellings are located in a flood zone?

– 100%

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Trivia #4

• What is the PRP policy fee?

– $11.00

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Trivia #5

• Is sewer backup covered under NFIP? If so when? If not, why not?

– Damage caused by sewer or drain backup, or overflows from a sump pump or related equipment are covered if the event is a direct result of flooding.

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Trivia #6

• Loss avoidance measures are paid to the policyholder under the NFIP policy at the federal minimum wage rate. What is the rate per hour paid?

– $5.15 per hour

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Trivia #7

• A home located in a SFHA has a 26% chance of being damaged by flood over the life of a 30-year loan. What is the chance of the same house being damaged by fire during that same 30-year time period?

• 4%

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Trivia #8

• You’ve owned your house six years. It has suffered covered flood damage four times. Which is true:– A. You’re policy may be non-renewed.– B. Your policy will renew, at a higher rate– C. Your policy will renew at the same

premium ?????• Correct answer: “C”

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Trivia #9

• Who is the Director of FEMA’s Mitigation Division….the “main man for flood insurance?”

– David Maurstad

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Trivia #10

• What’s the best restaurant on the planet?

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Thanks For Being Here Today

David Thompson

Florida Association of Insurance Agents

[email protected]

1 “Flood Facts for 2007” David Thompson Florida Association of Insurance Agents...

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