Jana Green, CFM 2013 NJAFM Annual Conference October 17, 2013 – Concurrent Session #3
Flood Insurance Rating: Facts and Factors
THIS PRESENTATION IS INTENDED TO PROVIDE:
• A clear and high-level explanation of how National Flood Insurance Program (NFIP) flood insurance premiums are calculated
THIS PRESENTATION IS NOT INTENDED TO PROVIDE:
• Answers to Biggert-Waters 2012 (BW12) mysteries
• NFIP coverage and claim information
• Policy cancellation/nullification/endorsement information
Purpose of Presentation
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• Information Needed to Rate a NFIP Flood Insurance Policy
• Overview of Premium Calculation
• Breakdown of Premium Calculation • Preferred Risk Policies • Pre-FIRM • Post-FIRM
• NFIP Flood Insurance Rating References
Topics of Discussion
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• A program which makes flood insurance available within participating communities
NFIP
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• Flexibility exists within the program so flood insurance is based on workable methods of pooling risks, minimizing costs, and distributing burdens equitably among those who would be protected by flood insurance
• NFIP participating community?
• Pre-FIRM construction or post-FIRM construction?
• Detailed building description and replacement cost
• Flood zone and building elevation data; CBRS area?
• Non-Principal/Non-Primary residence? Severe Repetitive Loss (SRL) property?
• Where are the building and contents located?
• New/lapsed policy? Loss history?
• CRS discount? Other deductible chosen?
Before a Policy Can Be Rated
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Click for Source
1. Determine rate and multiply by $100 of coverage
2. Subtract deductible discount, if applicable
3. Add Increased Cost of Compliance (ICC) premium
4. Subtract Community Rating System (CRS) discount
5. Add 5% Federal Reserve Fund Assessment
6. Add probation surcharge, if applicable
7. Add Federal Policy Fee
Premium Calculation
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• A lower-cost standard flood insurance policy for structures located in Zones B, C, and X
• Loss history cannot exceed:
• 2 separate flood insurance claims or disaster relief payments of at least $1000 each
• 3 or more separate flood insurance claims or disaster relief payments of any amount
• 1 claim and 1 disaster relief payment, each for separate losses, of at least $1000 each
Preferred Risk Policy (PRP)
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Sample PRP Table
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• Applies to buildings newly shown in Special Flood Hazard Areas on or after October 1, 2008
• Buildings must meet Preferred Risk Policy loss history requirements
• Historic FIRM must be provided
Preferred Risk Policy Extension
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Sample PRP Extension Table
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Basic vs. Additional Coverage
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• Basic Insurance Limits are calculated first
• Additional Insurance Limits are added to Basic Insurance Limits until Total Insurance Limits are reached
• Applies to both building and contents coverage; pre-FIRM and post-FIRM
Pre-FIRM vs. Post-FIRM
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Pre-FIRM Built before initial FIRM
or On or before 12/31/1974
Post-FIRM Built after initial FIRM
or After 12/31/1974
…whichever is LATER
Pre-FIRM Policy Rating
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• Rate for a single family home; $250,000 building and $100,000 contents; with basement
• Building Basic = $0.97 x 600 = $582 • Building Additional = $1.14 x 1900 = $2166 • Contents Basic = $1.15 x 250 = $288 • Contents Additional $1.16 x 750 = $870 Subtotal = $3906
• Provides building elevations and other building specifications
• Required for all post-FIRM and full-risk rated pre-FIRM structures located in SFHAs
• Can be completed by property owner or community official for Zone A structures if no BFE is available
• Can be completed by property owner or community official for Zone AO structures
Elevation Certificate
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Lowest Floor Guide
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• Uses information from the Elevation Certificate to determine the elevation used for rating a flood insurance policy
FOR MOST FLOOD HAZARD ZONES:
• Lowest Floor Elevation (LFE) - Base Flood Elevation (BFE) = Elevation Difference
• LFE determined using Lowest Floor Guide; BFE determined using the Flood Insurance Rate Map and Flood Insurance Study
Elevation Difference
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FOR ZONE A AND ZONE AO:
• Top of Bottom Floor (TOBF) - Highest Adjacent Grade (HAG) = Elevation Difference
• TOBF and HAG found on the Elevation Certificate
Elevation Difference
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Post-FIRM Rating: Zone AE, A1-30
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• Rate for a single family home; $250k building; 3 floors with basement; elevation difference = -1
• Building Basic = $2.28 x 600 = $1368 • Building Additional = $0.41 x 1900 = $779
Subtotal = $2147
• Additional information may be used to evaluate the coastal risk when it is believed that the design, placement, and/or construction of a building is such that the usual criteria used to establish actuarially appropriate rates do not reflect the lessened risk to the structure
• The V-Zone Risk Factor Rating Form is used in conjunction with the V-Zone Risk Rating Relativities Table to reflect premium adjustments
• Factors range from 0.4 to 1.0
V-Zone Considerations
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Questions?
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Click for Source
Post-FIRM Rating: Zone A
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• Rate for a single family home; $250k building/$100k contents; no basement; no BFE; elevation difference = +1
• Building Basic = $2.68 x 600 = $1608 • Building Additional = $0.42 x 1900 = $798 • Contents Basic = $1.54 x 250 = $385 • Contents Additional $0.16 x 750 = $120
Subtotal = $2911
Post-FIRM Rating: Zone AO
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• No BFE; TOBF – HAG = Elevation Difference
• If Elevation Difference is equal to or greater than the flood depth shown on the FIRM, use “compliant” rates
• Rate for a single family home; $250k building/$100k contents; no basement; no BFE; compliant
• Building Basic = $0.28 x 600 = $168 • Building Additional = $0.08 x 1900 = $152 • Contents Basic = $0.38 x 250 = $95 • Contents Additional $0.23 x 750 = $98
Subtotal = $513
• All non-residential floodproofed structures are submitted for rating directly from the NFIP
• Building must be floodproofed to the BFE +1
• Floodproofing credit is not available in V zones
Floodproofing Certificate
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Certain structures in high-risk zones have characteristics which require an in-depth underwriting analysis before a premium can be provided.
• FEMA Underwriting Branch receives:
• NFIP Application and Submit-for-Rate Worksheet
• Elevation Certificate and Building Photographs
• Elevated Building Determination Form
• Miscellaneous Items • Variance statement • List of machinery and equipment • Breakaway wall certification • V-Zone Risk Factor Rating Form
Submit-for-Rate
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Click for Source
• Section 1 – Pre-FIRM and Post-FIRM Non-Elevated Buildings and Pre-FIRM Elevated Buildings
• Section 2 – Post-FIRM Elevated Buildings
• Section 3 – Unnumbered A Zone
• Section 4 – Unnumbered V Zone
• Section 5 – Miscellaneous (buildings over water; floodproofed non-residential buildings; ICC coverage)
• Appendix – Forms for Use in Specific Rating
Specific Rating Guidelines
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1. Calculate starting rate for Lowest Elevated Floor, based on “no basement/enclosure” rates from the Flood Insurance Manual
2. Add the following Loading Factor(s) to the starting rate: A. Enclosure/Crawlspace (tabled by square footage
and elevation) B. Machinery/Equipment (tabled by elevation of
machinery/equipment below BFE) C. Elevator(s), if applicable (for most structures, 0.25
per elevator)
3. Contents coverage calculation
Specific Rating Procedures
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• Enables rating of new policies before an Elevation Certificate has been received
• Building/contents rates range from $3.00/$2.00 to $6.00/$4.00 per $100 of coverage
• All of the following must apply • Post-FIRM • 1-4 family residential • Building located in Zones AE, A1-A30, AO, AH, or in Zone
A areas where the community provides BFEs
• Policies cannot be renewed or rewritten with provisional rates
Provisional Rating
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• Used to issue policies when agents fail to provide the full-risk rating information
• Range from $3 to $12 per $100 of coverage
• Notice of Tentative Rating provided to the policyholder, agent, and mortgagee, if any
• When necessary documentation has been received, policy is rerated and rewritten
• Coverage amounts adjusted in the event of a loss
Tentative Rates
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• Written consent from any mortgagee listed on the policy should be obtained before requesting a deductible higher than the standards
Deductible Factors
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• Serves to fund Increased Cost of Compliance Coverage
• Not eligible for deductible discounts
ICC Premium
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• Ranges from 5% to 45%, depending on the community’s class
• Preferred Risk Policies and Mortgage Portfolio Protection Program Policies are not eligible
• Most Submit-for-Rate policies are also ineligible
• Discount table located in Flood Insurance Manual
CRS Discount
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• Required by Biggert-Waters 2012
• 5% of premium; applied after CRS discount
• Assessed to most premiums to build a catastrophic reserve fund
• Does not apply to Preferred Risk Policies and Group Flood Insurance Policies
Federal Reserve Fund Assessment
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• A non-compliant NFIP community may face a one-year probationary period
• $50 surcharge applied to all policies within the community
Probation Surcharge
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• Required by Biggert-Waters 2012
• $44 for standard NFIP policies; $22 for Preferred Risk Policies
• Assessed to defray administrative expenses incurred in carrying out the NFIP
Federal Policy Fee
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1. Determine rate and multiply by $100 of coverage
2. Subtract deductible discount, if applicable
3. Add Increased Cost of Compliance (ICC) premium
4. Subtract Community Rating System (CRS) discount
5. Add 5% Federal Reserve Fund Assessment
6. Add probation surcharge, if applicable
7. Add Federal Policy Fee
Overview Revisited
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• NFIP Flood Insurance Manual
• NFIP Specific Rating Guidelines
• FloodSmart
• Map Service Center
• FEMA GeoPortal – National Flood Hazard Layer
• BW-12
• FEMA Elevation Certificate
• NFIP Lowest Floor Guide
• NFIP Write Your Own (WYO) Bulletins
References
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