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Jana Green, CFM 2013 NJAFM Annual Conference October 17, 2013 – Concurrent Session #3

Flood Insurance Rating: Facts and Factors

Presenter

Presentation Notes

Presentation Overview: For many National Flood Insurance Program (NFIP) stakeholders, much information is available about floodplain management regulations and mapping procedures; however, many remain confused about how flood insurance premiums are calculated. The purpose of this presentation is to provide interested stakeholders with a high-level explanation of flood insurance rating procedures.

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

2 | Flood Insurance Rating: Facts and Factors October 17, 2013

• 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


• A program which makes flood insurance available within participating communities

NFIP


• 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


Presenter

Presentation Notes

Because of the flexibility allowed by the NFIP, certain information must be known before a policy can be rated correctly. This is a list of factors which affect flood insurance policy rating. This information is gathered from the flood insurance application; EC and other forms and certifications; FIS/FIRM; photographs; etc. Detailed Building Description (expanded) Building/Foundation Type Occupancy Type (residential/other residential/non-residential/RCBAP) Basement/Enclosure Elevated Building Type Opening/Vents


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Presenter

Presentation Notes

If you are left-brained, or if you tend to get a little anxious when there’s math in the room, please calm down. The goal is to make sure everyone understands the information presented.

http://www.warningsignshirts.com/thumbwarning.php?name=BEWARE+OF+MATH&font=impact.ttf&color=000000&pt=false


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


Presenter

Presentation Notes

We will get a little more detailed as we move forward, but here is an at-a-glance summary of the steps to determine a flood insurance premium.

• 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)


Presenter

Presentation Notes

RCBAP and certain other condominium policies are not eligible, nor are buildings on Leased Federal Property located on the river-facing side of a riverine or coastal flood-control structure Contents located entirely in a basement are not eligible for contents-only coverage; contents located entirely in an enclosure are eligible. Optional deductible not available; $1000 standard applied separately for building and contents Separate application needed for PRP policies

Sample PRP Table


Presenter

Presentation Notes

Images from the October 2013 NFIP Flood Insurance Manual; PRP 6 1 Add the $50 Probation Surcharge, if applicable. 2 Premium includes Federal Policy Fee of $22. 3 Premium includes ICC Premium of $5. Deduct this amount if the risk is a condominium unit. 4 Do not use this section of the table for buildings with crawlspaces or subgrade crawlspaces; see footnote 5. Use this section of the table if a building elevated on a crawlspace has an attached garage without openings. 5 Use this section of the table for buildings with crawlspaces or subgrade crawlspaces. 6 Use this “All Residential Contents-Only Coverage” premium table for individual residential condominium unit contents-only policies.

• 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


Presenter

Presentation Notes

* Buildings must have been located in Zones B, C, X, or D at the time of the map revision

Sample PRP Extension Table


Presenter

Presentation Notes

Images from the October 2013 NFIP Flood Insurance Manual; PRP 9

Basic vs. Additional Coverage


• 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

Presenter

Presentation Notes

Image from the October 2013 NFIP Flood Insurance Manual; RATE 1

Pre-FIRM vs. Post-FIRM


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


• 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

Presenter

Presentation Notes

Pre-FIRM tables in Flood Insurance Manual cannot be used for new/lapsed policies; severe repetitive loss properties; or non-principal/non-primary residences. Example is for A Zones; tables are also available for V Zones and Standard B, C, and X policies (these are not eligible for the PRP because of failure to meet loss history requirements) VE rates for same structure would be 1.58/3.77 building; 1.84/3.67 contents 1 Pre-FIRM construction refers to a building that has a date of construction or substantial improvement date on or before 12/31/74, or before the effective date of the initial Flood Insurance Rate Map (FIRM), whichever is later. If the building is a non-principal/non-primary residence located in an SFHA or Zone D, use Table 2B. 2 Pre-FIRM buildings may use Post-FIRM elevation rating if more favorable to the insured. However, when the lowest floor elevation is below the Base Flood Elevation (BFE), follow the Submit-for-Rate procedures for policy processing. 3 For an elevated building on a crawlspace with an attached garage without openings, use “With Enclosure” rates. 4 The definition of Manufactured (Mobile) Home includes travel trailers; see the Definitions section of this manual. 5 Includes subgrade crawlspace. 6 Includes crawlspace.

• 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


Lowest Floor Guide


• Uses information from the Elevation Certificate to determine the elevation used for rating a flood insurance policy

Presenter

Presentation Notes

There is a Lowest Floor Guide within the Flood Insurance Manual; the information contained within is also available as a separate document.

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


Presenter

Presentation Notes

Standard rounding rules apply: X.5 through X.9 rounds up; X.1 through X.4 rounds down.

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


Presenter

Presentation Notes

Standard rounding rules apply: X.5 through X.9 rounds up; X.1 through X.4 rounds down.

Post-FIRM Rating: Zone AE, A1-30


• 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

Presenter

Presentation Notes

Table from NFIP FIM; RATE 6 1 Pre-FIRM elevated buildings with or without enclosure/crawlspace must use the “No Basement/Enclosure/Crawlspace” columns. Use the Lowest Floor Guide to determine the lowest floor elevation for rating. Unfinished partial enclosures below a Pre-FIRM building that are used solely for parking, storage, and building access and are located below the BFE are eligible for Special Rate Consideration. 2 If the Lowest Floor is -1 because of an attached garage and the building is described and rated as a single-family dwelling, see the Lowest Floor Determination subsection in the Lowest Floor Guide section of this manual or contact the insurer for rating guidance; rate may be lower. 3 If the lowest floor of a crawlspace or subgrade crawlspace is -1, use submit-for-rate procedures (Pre-FIRM or Post-FIRM). If the lowest floor of an enclosure below the elevated floor of a Post-FIRM building is -1, also use submit-for-rate procedures. 4 Includes subgrade crawlspace. 5 Use Submit-for-Rate procedures if there is an elevator below the BFE regardless of whether there is an enclosure or not. 6 The definition of Manufactured (Mobile) Home includes travel trailers; see the Definitions section of this manual.

• 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


Presenter

Presentation Notes

What is Submitted to the NFIP? V-Zone Risk Factor Rating Form A copy of the site grading and structural plans Elevation Certificate and photographs

Questions?


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Post-FIRM Rating: Zone A


• 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

Presenter

Presentation Notes

No BFE; TOBF – HAG = Elevation Difference 1 Buildings with basement, enclosure, crawlspace, or subgrade crawlspace: follow Submit-for-Rate procedures. Unfinished partial enclosures below a Pre-FIRM building that are used solely for parking, storage, and building access and are located below the BFE are eligible for Special Rate Consideration. 2 Pre-FIRM buildings may use this table if the rates are more favorable to the insured. 3 For elevation-rated risks other than Single Family, when contents are located 1 floor or more above lowest floor used for rating – use Table 3B, Contents Rates, Above Ground Level More Than 1 Full Floor. 4 Elevation difference is the measured distance between the highest adjacent grade next to the building and the lowest floor of the building. 5 Elevation difference is the measured distance between the BFE provided by the community or registered professional engineer, surveyor, or architect and the lowest floor of the building. 6 For policies with effective dates on or after October 1, 2011, the No Elevation Certificate rates apply only to renewals and transfers. Provisional or tentative rates are to be used for new business without an Elevation Certificate.

Post-FIRM Rating: Zone AO


• 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

Presenter

Presentation Notes

Zone AH is also rated using this table; however there are BFEs in Zone AH which are compared to the Lowest Adjacent Grade to a structure. 5 Zones AO, AH Buildings with Basement/Enclosure/Crawlspace/Subgrade Crawlspace: follow Submit-for-Rate procedures. Pre-FIRM buildings with basement/enclosure/crawlspace/subgrade crawlspace at or above the BFE or Base Flood Depth are to use the “With Certification of Compliance or Elevation Certificate” rates and would not have to follow Submit-for-Rate procedures. 6 “With Certification of Compliance or Elevation Certificate” rates are to be used when the Elevation Certificate shows that the lowest floor elevation used for rating is equal to or greater than the community’s elevation requirement, or when there is a Letter of Compliance from the community. 7 “Without Certification of Compliance or Elevation Certificate” rates are to be used only on Post-FIRM buildings when the Elevation Certificate shows that the lowest floor elevation is less than the community’s elevation requirement. 8 For transfers and renewals of existing business where there is no Letter of Compliance or Elevation Certificate in the company’s file, these rates can continue to be used. Provisional or tentative rates are to be used for new business without an Elevation Certificate or Letter of Compliance. For new business effective on or after October 1, 2011, the provisions of footnote 7 apply.

• 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


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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• 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


Presenter

Presentation Notes

Forms: Exhibit1 – Elevated Building Determination Form for A Zones Exhibit2 – Elevated Building Determination Form for V Zones Exhibit3 – Specific Rating Reporting Form and Rating Worksheet – Non-Elevated Buildings Exhibit4 – Specific Rating Reporting Form and Rating Worksheet – Elevated Buildings Exhibit 5 – Variance Chart

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


Presenter

Presentation Notes

Basic coverage is based on the starting rate and the loading factors; additional coverage is based only on the starting rate. Contents Coverage: Obtain the “no basement/enclosure” rates basic and additional limits based on the elevation difference between the top of the next higher floor and BFE (using appropriate contents location and occupancy) from Table 3B in the Rating Section of the FIM. If the difference between the next higher floor and BFE is -2 or lower, obtain the rate from the SRG.

• 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


Presenter

Presentation Notes

Mobile homes are not eligible for provisional rating An Elevation Certificate should be secured and the policy should be rewritten within 60 days of the policy’s effective date Failure to do so could result in reduced coverage amounts in the event of a loss Notice is provided to the insured, the agent, and the lender (if applicable)

• 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


• Written consent from any mortgagee listed on the policy should be obtained before requesting a deductible higher than the standards

Deductible Factors


Presenter

Presentation Notes

Image from the October 2013 NFIP Flood Insurance Manual; RATE 15 The standard deductible is $1000 for buildings that aren’t located in the SFHA, post-FIRM structures in the SFHA, and pre-FIRM structures rated will full risk elevation rating. The standard deductible for pre-FIRM buildings located in the SFHA is $2000.

• Serves to fund Increased Cost of Compliance Coverage

• Not eligible for deductible discounts

ICC Premium


Presenter

Presentation Notes

Image from the October 2013 NFIP Flood Insurance Manual; RATE 16 Allows up to $30,000 for structural flood mitigation activities Structure must be determined to be substantially damaged or a *repetitive loss property; community must have applicable definitions in its ordinance Designed to reduce future flood damage

• 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


Presenter

Presentation Notes

Regional CRS Coordinator is a Point of Contact for CRS–related information

• 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


• A non-compliant NFIP community may face a one-year probationary period

• $50 surcharge applied to all policies within the community

Probation Surcharge


Presenter

Presentation Notes

If a community is non-compliant with NFIP floodplain management criteria, it may face a one-year probation during which there is a $50 surcharge attached to policies.

• 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


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


• 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


http://www.fema.gov/flood-insurance-manual

http://www.fema.gov/media-library/assets/documents/34620

http://www.floodsmart.gov/

https://msc.fema.gov/

http://fema.maps.arcgis.com/home/webmap/viewer.html?webmap=cbe088e7c8704464aa0fc34eb99e7f30

http://www.fema.gov/flood-insurance-reform-act-2012

http://www.fema.gov/media-library/assets/documents/160?id=1383

https://www.fema.gov/media-library/assets/documents/18180?id=4106

http://bsa.nfipstat.fema.gov/wyobull/wyobull2013.html

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