5/A - Flood Insurance

Question 1

The National Flood Insurance Program (NFIP)

Answer 1

Floods: The leading cause of property damage in the U.S.

NFIP

• Federal insurance
• Fills coverage gap left by homeowners’ insurance

Question 2

The NFIP

Answer 2

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.

Question 3

Flood Insurance Rate Map (FIRM)

Answer 3

• 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

Question 4

Flood Definition

Answer 4

Flood:

1. 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
2. Collapse of land along the shore of a lake or other body of water which causes overflow of inland waters

Question 5

Standard Flood Insurance Policy

Answer 5

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

Question 6

Write Your Own (WYO) Program

Answer 6

• 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

Question 7

NFIP Policy Forms

Answer 7

Three NFIP Policy Forms:

• Dwelling Form
• General Property Form
• Residential Condominium Building Association Policy (RCBAP)

Question 8

Dwelling Form

Answer 8

• 1 to 4 family dwellings
• 1 to 4 family condo units
• Residential contents

Question 9

General Form

Answer 9

General Property Form

• Non-residential buildings + contents
• Some residential buildings that don’t qualify for Dwelling Form

Question 10

RCBAP

Answer 10

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.

Question 11

Coverage A: Dwelling

Answer 11

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

Question 12

Coverage B: Personal Property

Answer 12

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

Question 13

Coverage C: Other Coverages

Answer 13

• Debris Removal from premises and covered property
• Loss Avoidance Measures
• Property Removed to Safety

Question 14

Debris Removal

Answer 14

• 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

Question 15

Loss Avoidance Measures (Mitigation)

Answer 15

• 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)

Question 16

Property Removed to Safety

Answer 16

• Pays to move insured property away from flood
• No deductible
• Pays up to $1000
• Removed property only covered against flood

Question 17

Coverage D: Increased Cost of Compliance

Answer 17

Covers cost of complying with:

• floodplain management law
• ordinances concerning repair or reconstruction

Question 18

Coverage D: Limit

Answer 18

• $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

Question 19

Coverage D: Exclusions

Answer 19

SFIP Exclusions

• Property or buildings in on or over water
• Land
• Lawns
• Trees, Shrubs, Plants
• Crops
• Animals

Question 20

SFIP Liability Limits and Deductibles

Answer 20

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

Question 21

Insured’s Duties After a Loss

Answer 21

• 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

Question 22

Adjuster’s Duties After a Loss

Answer 22

• 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

Question 23

Reduction and Reformation

Answer 23

• 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

Question 24

Loss Payment Condition

Answer 24

The insurer has 60 days from when it receives a proof of loss to pay the claim.

Question 25

Loss Settlement

Answer 25

Three Loss Settlement options:

1. 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
2. Replacement Cost
   a. Single family dwelling
   b. Owner occupied
   c. Insured’s principal residence
   d. Insured at 80% of replacement value
3. 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

Question 26

Adjusting NFIP Flood Claims

Answer 26

With respect to NFIP claims, adjustments are recommendations only.
NFIP expects adjusters to explain this to policyholders.

Question 27

NFIP Certification

Answer 27

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.

Question 28

Getting NFIP Certified: Adjuster Certification Application

Answer 28

Five areas of authorization:

1. Residential
2. Manufactured (Mobile) Home / Travel Trailer
3. Commercial
4. Large Commercial
5. Condominium (RCBAP)

Note: Each certification includes the ones before it.

Question 29

Certification: Residential, Mobile Home, Small Commercial

Answer 29

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

Question 30

Certification: Large Commercial, RCBAP

Answer 30

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