5/A - Flood Insurance Flashcards
The National Flood Insurance Program (NFIP)
Floods: The leading cause of property damage in the U.S.
NFIP
- Federal insurance
- Fills coverage gap left by homeowners’ insurance
The NFIP
The federal government established NFIP under the jurisdiction of FEMA.
- Flood insurance is only available for communities that participate in the NFIP.
- Individuals within participating communities can purchase flood insurance.
- Participating communities agree to maintain floodplain management strategies.
Flood Insurance Rate Map (FIRM)
- Identify flood zones and hazards
- Use a measurement called the “base flood”
Base Flood: a flood so bad that it only happens once in 100 years
Base Flood Elevation (BFE): the highest level that the water would reach during a base flood
Base flood elevations help regulate:
- New construction
- Premiums
Flood Definition
Flood:
- Temporary inundation of 2 or more acres or properties caused by:
- overflow of inland or tidal waters
- rapid accumulation of surface water or runoff
- mudflow - Collapse of land along the shore of a lake or other body of water which causes overflow of inland waters
Standard Flood Insurance Policy
NFIP Standard Flood Insurance Policy (SFIP)
- Federal Insurance
- Not subject to local or state courts
- Not subject to state departments of insurance
Waiting Period: 30 days
NFIP Direct:
- Issued by federal government
- Claims handled by federal government
Write Your Own (WYO) Program
- Private Insurers
a. Sell and underwrite policies
b. Keep a percentage of premiums to cover expenses
c. Put remaining premiums into NFIP accounts
d. Pay claims from NFIP accounts - Federal Government
a. Sets guidelines for insurers when underwriting and managing policies
b. Sets up claim accounts
c. Helps cover losses that exceed the amount available in claim accounts - WYO Program
a. More efficient
b. Generates 90% of flood policies
NFIP Policy Forms
Three NFIP Policy Forms:
- Dwelling Form
- General Property Form
- Residential Condominium Building Association Policy (RCBAP)
Dwelling Form
- 1 to 4 family dwellings
- 1 to 4 family condo units
- Residential contents
General Form
General Property Form
- Non-residential buildings + contents
- Some residential buildings that don’t qualify for Dwelling Form
RCBAP
Residential Condominium Building Association Policy (RCBAP): Insures residential condo associations
Note: an individual condo unit owner would buy a Dwelling policy. The RCBAP is only for condo associations.
Coverage A: Dwelling
Coverage A insures:
- 1 to 4 family dwellings
- “Attached additions” connected to dwelling by:
a. rigid exterior wall
b. solid load-bearing wall
c. stairway
d. elevated walkway
e. roof - Detached garages: up to 10% of Coverage A limit (all other detached structures are excluded)
- Construction materials: only if INSIDE a covered building
- Buildings under construction: deductible is doubled
Coverage B: Personal Property
Covers direct physical loss to contents due to flood
Requirements for contents coverage:
- Separate purchase and deductible
- Items must be in an enclosed building or secured if building is partially endorsed
Coverage C: Other Coverages
- Debris Removal from premises and covered property
- Loss Avoidance Measures
- Property Removed to Safety
Debris Removal
- Pays to remove debris from the insured premises and from covered property
- Debris must be made up of covered property that was damaged by flood
Loss Avoidance Measures (Mitigation)
- Pays up to $1000 for avoidance measures
- No deductible
- Covered measures:
a. Sandbags (including the sand)
b. Fill for temporary levees
c. Pumps
d. Plastic sheeting and lumber
e. Labor (paid at federal minimum wage if insured or relatives do the work themselves)
Property Removed to Safety
- Pays to move insured property away from flood
- No deductible
- Pays up to $1000
- Removed property only covered against flood
Coverage D: Increased Cost of Compliance
Covers cost of complying with:
- floodplain management law
- ordinances concerning repair or reconstruction
Coverage D: Limit
- $30,000 (in addition to Coverage A limit)
Put together, payout for ICC and Coverage A cannot exceed:
- $250,000 for a dwelling or
- $500,000 for a commercial structure
Coverage D: Exclusions
SFIP Exclusions
- Property or buildings in on or over water
- Land
- Lawns
- Trees, Shrubs, Plants
- Crops
- Animals
SFIP Liability Limits and Deductibles
Liability Limits: Building Coverage - Single-Family Dwelling: $250,000 - Two to Four-Family Dwelling: $250,000 - Other Residential: $500,000 - Non-Residential: $500,000
Personal Property Coverage
- Residential: $100,000
- Non-Residential: $500,000
Deductibles
- Apply separately to Coverages A and B
- Range from $1,000 to $100,000
- Do NOT apply to ICC or Loss Avoidance Measures
Insured’s Duties After a Loss
- Immediately notify insurer of the flood loss
- Separate the damaged and undamaged property, and organize it for the adjuster’s examination
- Put account books, records, receipts, etc in a safe place for evaluation by the adjuster
- Submit an NFIP Proof of Loss Form within 60 days of loss
Adjuster’s Duties After a Loss
- Determine if there was a general condition of flooding (according to policy definition)
- Determine how the water entered the building
- Check for exterior and interior waterlines, report their height, and provide photographs
- Investigate and document all other evidence of loss
- Confirm that any previous flood damage has been repaired
Reduction and Reformation
- Reduces flood coverage limits if the insured’s premium was too low
- Insurer gives policyholder a chance to give more complete information
- Insurer uses this new info to calculate a more accurate premium
- Policyholder can restore coverage by paying outstanding premiums within 30 days
- If insurer discovers the mistake after a loss, the policyholder must pay two years’ worth of outstanding premiums before insurer will cover the loss
Loss Payment Condition
The insurer has 60 days from when it receives a proof of loss to pay the claim.
Loss Settlement
Three Loss Settlement options:
- Actual Cash Value
a. Two, three, or four family dwellings
b. Units NOT used solely as single-family dwellings
c. Detached garages
d. Personal property
e. Appliances, carpets, and carpet pads
f. Outdoor awnings, outdoor antennas or aerials, and other outdoor equipment attached to dwelling
g. Abandoned property that, after a loss, remains as debris at the described location
f. Dwellings that are not the principal residence - Replacement Cost
a. Single family dwelling
b. Owner occupied
c. Insured’s principal residence
d. Insured at 80% of replacement value - Special Loss Settlement
- For mobile homes or travel trailers
a. At least 16 feet wide
b. At least 600 sq. ft inside
c. Insured’s principal residence
- Policy pays the lowest of two amounts:
a. Replacement cost of dwelling (or 1.5 x ACV)
b. Coverage limit
Adjusting NFIP Flood Claims
With respect to NFIP claims, adjustments are recommendations only.
NFIP expects adjusters to explain this to policyholders.
NFIP Certification
Requirements for Independent Adjusters
Adjusters who want to work flood claims must be NFIP certified.
Certified adjusters must complete continuing education about NFIP claims every year.
NFIP maintains a database of independent adjusters who are certified to adjust flood claims for both NFIP Direct and WYO carriers.
Getting NFIP Certified: Adjuster Certification Application
Five areas of authorization:
- Residential
- Manufactured (Mobile) Home / Travel Trailer
- Commercial
- Large Commercial
- Condominium (RCBAP)
Note: Each certification includes the ones before it.
Certification: Residential, Mobile Home, Small Commercial
Adjusters have to meet certain requirements to get the first three areas of authorization:
- Residential
- Mobile homes/travel trailers
- Small commercial losses
Requirements:
- 4 consecutive years of full-time property adjusting experience
- Able to adjust losses accurately up to:
a. $50,000 for manufactured (mobile) homes/travel trailers
b. $250,000 for residential dwellings
c. $500,000 for commercial properties
Certification: Large Commercial, RCBAP
The requirements are different for adjusters who want to get authorized to work Large Commercial and RCBAP losses.
Requirements:
- At least 5 consecutive years of full-time large-loss property adjusting experience.
- Able to accurately adjust losses of:
a. $500,000 or more for Large Commercial losses
b. $1,000,000 or more for RCBAP losses - 3 written recommendations (which describe adjusting experience) from insurance company supervisors or claim management personnel
