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“Flood Facts for 2007”. David Thompson Florida Association of Insurance Agents Dthompson@faia.com. HOUSEKEEPING INFO. Class times: 8:15 a.m. to 12:00 p.m. 10 minute break each hour Restroom locations. DFS Rule # 69B-228.060(5)(c) Prohibits…. Sleeping;
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“Flood Facts for 2007” David Thompson Florida Association of Insurance Agents Dthompson@faia.com
HOUSEKEEPING INFO • Class times: 8:15 a.m. to 12:00 p.m. • 10 minute break each hour • Restroom locations
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. >
Unauthorized Entity Issues • Appropriate pages in the back of your textbook. • DFS Help Line: 1-800-342-2762 • DFS Web Page: www.fldfs.com
Links to This Class • Go to www.faia.com • Click on “Education” • Click on “Flood Facts for 2007 Links” >
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 >
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
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) >
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
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
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 >
NFIP History • Program revised in 1994 • Current $250K max was what??? • $185K • Current 30-day wait was what? • 5 days
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
Regular Program • FIRMs in place • Actuarially sound rates • Coverage available • $250,000/$100,000 all residential • $500,000/$500,000 non-residential
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…..
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
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
Ineligible Buildings • In violation of floodplain management • Over water, built after 10/1/82
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
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” >
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. >
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.
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.
Mandatory Purchase • No coverage if land only loan • Course of construction – coverage must be effective when construction starts • Coverage required for home equity loans >
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 >
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 >
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…
Mandatory PurchaseCondominiums • 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
Mandatory PurchaseCondominiums • 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.
Mandatory PurchaseCondominiums • 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
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. >
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 >
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….. >
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
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%. >
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,
How Would You Like This to be Your Name in Lights?? • Leonard v. Nationwide • Hurricane Katrina “wind vs. flood” lawsuit
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.
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.
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.” >
Flood Insurance vs. Disaster Assistance • Made simple: • Flood insurance • You get to keep the money • Disaster assistance • You pay the money back >
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 >
Flood Maps & Zone Determinations • http://msc.fema.gov
Flood Hazard Boundary Maps(FHBM) • For Emergency Program communities
Flood Insurance Rate MapsFIRM • Regular Program communities • Official source of flood risk data • Show zones, BFE, base flood depths