Transcript Insurance Storm Stories” Life on the Road With an

“Flood Facts for 2007”
David Thompson
Florida Association of Insurance Agents
[email protected]
1
HOUSEKEEPING INFO
• Class times: 8:15 a.m. to 12:00 p.m.
• 10 minute break each hour
• Restroom locations
2
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.
>
3
Unauthorized Entity Issues
• Appropriate pages in the back of your
textbook.
– DFS Help Line: 1-800-342-2762
– DFS Web Page: www.fldfs.com
4
FAIA Web Page
5
Links to This Class
• Go to www.faia.com
• Click on “Education”
• Click on “Flood Facts for 2007 Links”
>
6
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
>
7
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
8
Statistics
9
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)
>
10
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
11
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
12
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
>
13
NFIP History
• Program revised in 1994
– Current $250K max was what???
• $185K
– Current 30-day wait was what?
• 5 days
14
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
15
Regular Program
• FIRMs in place
• Actuarially sound rates
• Coverage available
– $250,000/$100,000 all residential
– $500,000/$500,000 non-residential
16
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…..
17
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
18
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
19
Ineligible Buildings
• In violation of floodplain management
• Over water, built after 10/1/82
20
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
21
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”
>
22
Mandatory Purchase of Flood
Insurance
23
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.
>
24
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.
25
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.
26
Mandatory Purchase
• No coverage if land only loan
• Course of construction – coverage must be
effective when construction starts
• Coverage required for home equity loans >
27
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
>
28
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
>
29
Mandatory Purchase
Condominiums
• 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…
30
Mandatory Purchase
Condominiums
• 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
31
Mandatory Purchase
Condominiums
• Example #2:
– 10-unit condo
– $3 million replacement cost
– RCBAP coverage amount: $2.5
million….max available under NFIP
– No unit owner coverage required.
$250,000 per unit limitation.
32
Mandatory Purchase
Condominiums
• Example #3:
– 10-unit condo
– $2 million replacement cost
– RCBAP coverage amount: $1.6m
(Suffices for 80% coinsurance)
– $400K shortfall…$40K per unit can be
required by lender
33
Loss Assessment & Condo Unit
Owner Coverage
(Pages 19/20)
34
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.
>
35
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
>
36
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…..
>
37
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
38
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%.
>
39
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,
40
Before You Tell the Condo
Dweller not to Buy Coverage…..
41
How Would You Like This to be
Your Name in Lights??
• Leonard v. Nationwide
• Hurricane Katrina “wind vs. flood” lawsuit
42
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.
43
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.
44
Non-SFHA Zones
• 20% to 30% of claims come from nonSFHA policies
• Customer comment:
– “Am I in a flood zone.”
• Agent response:
– “When you crossed the state line into
Florida, you entered a flood zone.”
>
45
Flood Insurance vs.
Disaster Assistance
• Made simple:
– Flood insurance
• You get to keep the money
– Disaster assistance
• You pay the money back
>
46
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
>
47
Flood Maps & Zone
Determinations
• http://msc.fema.gov
48
Flood Hazard Boundary Maps
(FHBM)
• For Emergency Program communities
49
Flood Insurance Rate Maps
FIRM
• Regular Program communities
• Official source of flood risk data
• Show zones, BFE, base flood depths
50
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
51
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
52
Base Flood Elevation (BFE)
• The computed elevation to which floodwater
is anticipated to rise during the base flood
53
Flood Zone Determination
Companies
54
Three Policies (4)
• 1. Dwelling
• 2. General Property
• 3. RCBAP
• Preferred Risk Policy (PRP)
55
Dwelling Form (4)
• Eligibility
– 1-4 dwellings with permitted incidental
occupancies
– Dwelling unit in a condominium
– Residential rowhouse/townhouse
56
General Property Form (4)
• 5+ family residential
• Non-residential buildings
57
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
58
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
59
Preferred Risk Policy
Loss History
• Short version of ineligibility:
– Two or more claims or federal disaster
aids may disqualify you from PRP
– Dollar amount are a factor
60
SFP to PRP
• Can go back six years to convert SFP to
PRP
• Why convert???
– $250,000/$100,000 policy
• PRP: $317
• SFP: $950
61
Dwelling Policy Analysis
(Page 15)
62
Eligibility (15)
• 1-4 family dwelling; or
• Residential condo unit
63
II. Definitions (15)
64
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
65
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.
>
66
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!
>
67
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;
68
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.
>
69
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.
>
70
III. Property Covered (17)
71
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.
>
72
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.
>
73
Under Construction (17)
74
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.
75
#7. Building Items (18)
76
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;
77
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;
78
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;
79
r. Ranges, cooking stoves, and ovens;
s. Refrigerators; and
t. Wall mirrors, permanently installed.
>
80
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:
81
(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;
82
(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.
83
Items Below The Lowest
Elevated Floor
• Examples of what’s not covered:
– Paint on drywall
– Wallpaper
– Carpet
– Paneling
– Ranges & ovens
– Refrigerators
>
84
Property Covered
Coverage B – Personal Property (18)
85
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.
86
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. >
87
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.
>
88
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
>
89
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.
>
90
Debris Removal (19)
• a. We will pay the expense to remove nonowned 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.
91
Loss Avoidance Measures (19)
• $1,000 maximum
• Sandbags, sand, pumps, plastic sheeting, etc
• Your own labor at minimum wage rate
92
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
93
ICC
Increased Cost of Compliance (20)
• Complex issue
• Difficult for it to respond
• This is not “building code” coverage!!
94
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
>
95
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)
96
ICC
• ICC responds for:
– Elevating
– Floodproofing
– Demolition
– Relocation
97
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)
98
Property Not Covered (23)
• Underground structures – septic tanks!
• Walkways, decks, driveways…located
outside the perimeter walls
• Fences, seawalls, piers, docks!
• Swimming pools
99
Exclusions (23)
•
•
•
•
•
•
Loss of revenue or profits
Loss of access
Loss of use
Business income losses
Additional living expense
Ordinance & law other than ICC
100
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
>
101
General Conditions
Other 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
102
Assignment (25)
• Policy may be transferred to another party
when title to property is transferred.
• Avoids the 30-day wait
103
Reduction and Reformation (25)
• Rating errors:
• 30 days to pay additional premium
• If additional premium is not paid, coverage
is “adjusted down”
104
Policy Renewal (26)
• A true “30-day grace period” to pay the
premium.
105
Duplicate Policies (30)
• Not permitted
• Avoids the ability to go above the maximum
NFIP coverage limits available
106
Loss Settlement (30)
• NFIP is ACV except:
– Some dwellings
– RCBAP
107
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 >
108
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
109
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.
110
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
>
111
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
>
112
General Property Form
(Not in Text) (4)
113
Direct Physical Loss
• Direct damage required
• Not covered
– Indirect damage (Business Income)
– Property on a higher floor not damaged
– Upper/lower cabinet example
114
General Property Form
Other 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
115
RCBAP
• Remember…
– F.S. 718.111(11) dealing with
condominium insurance does NOT apply
to NFIP
116
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
117
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.
118
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
119
RCBAP
Property Not Covered
• Open structures
• Vehicles
(exception)
• Land, trees, etc
• Decks outside
perimeter walls of
building
• Docks
• Ordinance/law
• Fences
• Retaining walls,
seawalls
120
RCBAP
General Provisions
• Coinsurance
– 80% or maxed out
• Only improvements installed by the
association factor into the replacement cost
estimates
• Include foundation in calculations
121
RCBAP
General Provisions
• 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.
122
RCBAP
General Provisions
• ACV settlement on:
– Personal property
– Antenna
– Awnings
– Carpet & pad
– Appliances
123
RCBAP
Deductibles
• Standard deductible
– $500/$500
• Maximum deductibles permitted
– $25,000/$25,000
124
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
125
General Rules & Underwriting
126
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
127
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)
128
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
129
Loss Settlement (5)
• ACV at all times except:
– Some single family residences
– RCBAP, if insured to value (80%)
130
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)
131
Binders (6)
• Binder--A temporary agreement between
company, producer, and insured that the
policy is in effect. Binders are not
permitted under the NFIP
132
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.
>
133
Waiting Period (6)
• 30-days with exceptions
• Wait is waived for the person/entity getting
loan
– Condo unit owner vs. association
134
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
>
135
Waiting period
30-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.
136
Waiting Period
30-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.
137
Waiting Period
Required Documentation
• Agent’s representation is “as good as gold”
unless….
• …claim in first 30 days. Agent must supply
proof of no wait
138
Waiting Period
General 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
>
139
Waiting Period
Endorsements
• 30-day wait for increased coverage applies
except:
– Map revisions
– In connection with a loan
140
Waiting Period
Other 30-Day Exceptions
• Renewal when the higher limit is selected
• PRP renewal at next higher level
• Reduction of deductible at renewal
141
Policy Term (6)
• One-year
142
Cancellation (6)
• A flood policy may be cancelled at any
time:
– Question is: “Do I get a refund?”
• Refunds due in 23 situations
143
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
144
Elevation Certificate
When 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.
145
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 preFIRM. Post-FIRM must show building was
built in compliance
• Grandfathering does not apply to PRP
146
Coastal Barrier Resource Act (6)
• Previously addressed
147
Course of Construction (6)
• Previously addressed
148
Single Building (6)
149
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
150
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
>
151
Additions and Extensions (7)
• From the manual….
152
The NFIP insures additions and extensions
attached to and in contact with the dwelling by
means of a rigid exterior wall, a solid loadbearing 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.
153
Eligible/Ineligible Buildings (7)
• Previously addressed
154
Increased Cost of Compliance (7)
• Previously addressed
155
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.
156
Maps (7)
• Previously addressed
– http://msc.fema.gov
157
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
158
Helping the Client
File a Claim (8)
159
160
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)
161
Claims Handbook (8)
162
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.
163
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
164
Summary of Coverage
Exclusions That Apply
• http://www.fema.gov/library/viewRecord.do
?id=1904
165
NFIP Letters & Publications Sent
to the Policyholder
166
FEMA Letter to Policyholder
167
168
Claims Handbook
Sent by FEMA
169
170
Acknowledgment of Receipt
Sent by FEMA (2 Copies)
171
172
Prior Loss History
(Sent by FEMA)
173
174
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)
175
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 nonresidential, pre-FIRM, and non-primary
residential
>
176
Proposed Changes to NFIP
• 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
177
Proposed Changes to NFIP
• 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
>
178
Proposed Changes to NFIP
• Increase annual cap on premium increases
from 10% to 15%
• Increased borrowing authority to $25B
179
Elevation Certificate (9)
• Training available:
• http://training.nfipstat.com/portal2/default.asp
180
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
181
Elevation Certificate
• 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! >
182
Elevation Certificate
• Refer to appendix, page 34
183
184
185
186
187
188
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
189
Enclosure
• That portion of an elevated building
below the lowest elevated floor that is
either partially or fully shut in by rigid
walls.
190
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.
191
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
192
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
193
V Zones
• Must be free of obstruction
• If enclosure greater than 300 square feet,
different rates apply
194
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 68) A zones, if enclosure/crawl space has proper
openings.
195
Miscellaneous Issues
196
Non-NFIP Primary Coverage
197
Non-NFIP Primary Coverage
•
•
•
•
•
•
•
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……
198
Non-NFIP Primary Coverage
•
•
•
•
•
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 >
199
Excess Flood Products
200
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
201
Excess Flood
Cautions
• 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
202
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
>
203
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
204
Rating Errors
Refund Processing Procedures
• WYO carrier – responsible for current and
prior policy term
• NFIP Bureau refunds 3+ years, after
documentation submitted
205
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)
>
206
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.
207
FloodSmart Web Page
208
FloodSmart Agent Site
(Free Registration Required)
209
IIABA Virtual University
(Free Registration Required)
210
IRMI
211
Trivia Time
212
Trivia Question #1
• Spot the error on this FloodSmart web page:
213
214
Trivia #2
• How much is the federal policy fee on the
dwelling flood policy?
– $30.00
215
Trivia #3
• Of participating communities in the Regular
Program, what percent of single family
dwellings are located in a flood zone?
– 100%
216
Trivia #4
• What is the PRP policy fee?
– $11.00
217
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.
218
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
219
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%
220
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”
221
Trivia #9
• Who is the Director of FEMA’s Mitigation
Division….the “main man for flood
insurance?”
– David Maurstad
222
Trivia #10
• What’s the best restaurant on the planet?
223
Thanks For Being Here Today
David Thompson
Florida Association of Insurance Agents
[email protected]
224