CHAPTER FIVE - INTRODUCTION TO RATING

COMMUNITY RATING SYSTEM

I. GENERAL DESCRIPTION

The Community Rating System (CRS) is a voluntary program for NFIP-participating communities. The goals of the CRS are to reduce flood losses, to facilitate accurate insurance rating, and to promote the awareness of flood insurance.

The CRS has been developed to provide incentives for communities to go beyond the minimum floodplain management requirements to develop extra measures to provide protection from flooding. The incentives are in the form of premium discounts.

II. ELIGIBILITY

For a community to be eligible, the community must be in full compliance with the NFIP and be in the Regular phase of the program. Communities in the Emergency phase of the program are not eligible.

III. CLASSIFICATIONS AND DISCOUNTS

All communities start out with a Class 10 rating (which provides no discount). There are 10 CRS classes: Class 1 requires the most credit points and gives the greatest premium discount; Class 10 identifies a community that does not apply for the CRS, or does not obtain a minimum number of credit points and receives no discount. There are 18 activities recognized as measures for eliminating exposure to floods. Credit points are assigned to each activity. The activities are organized under four main categories:

Public Information,
Mapping and Regulation,
Flood Damage Reduction, and
Flood Preparedness.

Once a community applies to the appropriate FEMA region for the CRS program and its implementation is verified, FEMA sets the CRS classification based upon the credit points. This classification determines the premium discount for policyholders. Premium discounts ranging from 5 percent to a maximum of 45 percent will be applied to every policy written in a community as recognition of the floodplain management activities instituted.

The table below shows premium discounts for CRS Classes 1-10 within different flood Zones.

IV. CRS ACTIVITIES THAT CAN DIRECTLY BENEFIT INSURANCE AGENTS

Certain activities that are credited under the CRS provide direct benefit to agents writing flood insurance.

All CRS communities must maintain completed FEMA elevation and floodproofing certificates for all new and substantially improved construction in the Special Flood Hazard Area after the date of application for CRS classification. These certificates must be available upon request. Therefore, in writing a policy, an agent should be able to get these certificates from any CRS community. In addition, some CRS communities receive credit for having completed certificates for Post-FIRM buildings constructed prior to the CRS application date. If they do receive this credit, then these certificates should also be available to agents writing flood insurance. The community may charge a fee for copying certificates for inquirers.

Many CRS communities receive credit for providing inquirers with information from the community's FIRM. This includes a property's flood risk Zone and the Base Flood Elevation. The service must be publicized once a year. If a community is receiving this credit, then agents should be able to use the service. A fee may be charged for the service.

CRS PREMIUM DISCOUNTS

Class Discount

1 45%

2 40%

3 35%

4 30%

5 25%

6 10%

7 20%

8 15%

9 10%

10 5%

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SFHA (Zones A, AE, A1-A30, V, V1-V30, AO, and AH): Discount varies depending on class.

SFHA (Zones A99, AR, AR/A, AR/AE, AR/A1-A30, AR/AH, and AR/AO): 10% discount for Classes 1-6; 5% discount for Classes 7-9.*

Non-SFHA (Zones B, C, X, D): 10% discount for Classes 1-6; 5% discount for Classes 7-9.

Preferred Risk Policies and Mortgage Portfolio Protection Program policies are not eligible for CRS Premium Discounts.

*For the purpose of determining CRS Premium Discounts, all AR and A99 Zones are treated as non-SFHAs.

For the State of Illinois, the following eligible communities are shown (for illustrative purposes):

CRS 13 May 1, 2006

(COMMUNITY-NUMBER-COMMUNITY NAME CRS-ENTRY-DATE-CURRENT-EFFECTIVE DATE-CURRENT CLASS -

% DISCOUNT FOR SFHA1 % DISCOUNT FOR NON-SFHA2 STATUS3)

Illinois

170001 Adams County 10/1/96 10/1/01 8 10 5 C

170198 Addison, Village of 10/1/91 10/1/97 7 15 5 C

170059 Bartlett, Village of 10/1/91 05/1/04 7 15 5 C

170072 Calumet City, City of 10/1/00 05/1/03 6 20 10 C

170298 Carbondale, City of 10/1/02 10/1/02 9 5 5 C

170078 Country Club Hills, City of 10/1/93 10/1/94 8 10 5 C

170361 Deerfield, Village of 10/1/95 10/1/05 7 15 5 C

170182 DeKalb, City of 05/1/05 05/1/05 8 10 5 C

170081 Des Plaines, City of 10/1/93 10/1/03 7 15 5 C

170204 Downers Grove, Village of 10/1/91 10/1/02 7 15 5 C

170091 Flossmoor, Village of 10/1/93 04/1/00 8 10 5 C

170206 Glendale Heights, Village of 10/1/94 05/1/04 7 15 5 C

170107 Hoffman Estates, Village of 10/1/92 10/1/02 7 15 5 C

170400 LaSalle County 05/1/05 05/1/05 9 5 5 C

170116 Lansing, Village of 10/1/93 10/1/01 7 15 5 C

170378 Lincolnshire, Village of 10/1/93 10/1/03 5 25 10 C

170211 Lisle, Village of 10/1/91 10/1/01 7 15 5 C

170129 Mount Prospect, Village of 10/1/91 10/1/02 7 15 5 C

170213 Naperville, City of 10/1/91 10/1/97 10 0 0 R

170822 North Utica, Village of 05/1/05 05/1/05 9 5 5 C

170132 Northbrook, Village of 10/1/94 05/1/04 7 15 5 C

170214 Oak Brook, Village of 10/1/92 10/1/97 7 15 5 C

170172 Orland Hills, Village of 10/1/96 10/1/02 5 25 10 C

175170 Palatine, Village of 10/1/94 05/1/04 7 15 5 C

170533 Peoria County 10/1/92 10/1/97 8 10 5 C

170919 Prospect Heights, City of 10/1/94 05/1/04 8 10 5 C

170912 Sangamon County 04/1/00 04/1/00 8 10 5 C

170163 South Holland, Village of 10/1/92 10/1/02 5 25 10 C

170330 St. Charles, City of 10/1/94 10/1/04 8 10 5 C

170169 Tinley Park, City of 10/1/05 10/1/05 7 15 5 C

170173 Wheeling, Village of 10/1/91 10/1/93 8 10 5 C

170222 Willowbrook, Village of 10/1/91 10/1/02 6 20 10 C

170224 Wood Dale, City of 10/1/99 10/1/04 5 25 10 C

FLOOD INSURANCE RATE MAPS

The Flood Insurance Rate Maps (FIRM) show several things, but basically they show:

The high-risk areas A & V, which are also known as Flood Hazard Areas (SFHAs).
The low-to-moderate flood hazard Zones -B, C or X.
CoBRAs and OPAs.
Base Flood Elevations (BFEs)

Note: These abbreviations should be committed to memory—FIRM, SFHAs, CoBRA, OPAs (these two discussed later) and BFEs.

PRE-FIRM BUILDINGS

Pre-FIRM buildings are those that started construction or had substantial improvement prior to December 31, 1974 (It behooves one to remember that date) or prior to the effective date of the initial FIRM for the community, whichever is later.

POST-FIRM BUILDINGS

Post-FIRM buildings are those that were constructed or had substantial improvement after December 31, 1974, or on or after the effective date of the initial FIRM for the community, or whichever is later.

SPECIAL FLOOD HAZARD AREAS (SFHAs)

The SFHAs are clearly shown on the FIRM (Flood Insurance Rating Map - in case you have forgotten) by being labeled by the letters A and V, and are further easily identified as darkly shaded areas.

(SEE MAP EXAMPLE ABOVE)

BASE FLOOD ELEVATION (BFE)

The BFE information is required for rating Post-FIRM construction in SFHAs, but BFE information does not apply in low-to-moderate flood risk areas. BFE is required for rating Pre-FIRM buildings in SFHAs. But, Pre-FIRM buildings can be rated using the Post-FIRM rates with elevations if this shows to be advantageous to the insured. When a Pre-FIRM building is elevated, agents will determine whether Pre-FIRM or Post-FIRM rating is the best option for the insured, and will consult the Flood Insurance Manual.

The BFE has an impact on flood insurance premiums and floodplain management. As an example, the difference between the building's lowest floor elevation in relation to the BFE has an important impact on the flood insurance premium.

In order for the community to meet FEMA's floodplain management requirements, it must ensure that the lowest flood elevation of every substantial improved and newly constructed property equals or exceeds the BFE.

ZONE DETERMINATIONS

Agents can get a copy of the Standard Flood Hazards Determination Form (SFHDF) from the insurance company, or a borrower (mortgagee) may receive a copy from their lender (mortgagor).

Zone determinations can be made by viewing the FIRMS, usually obtainable from the planning and zoning offices where building permits are obtained. Some communities maintain elevation information for newer structures that is available to applicable property owners. For rating of Pre-FIRM buildings in SFHAs, the owner of the property will have to hire a surveyor, architect, or engineer to prepare an elevation certificate if the elevation information is not available elsewhere.

There is a five-step process for making a flood Zone determination by viewing the FIRM. Note, however, that the insurance company may provide flood Zone information and premium rating software for their agents licensed to write flood insurance.

Step 1. Locate the correct map panel by using the Map Index for the community, from which the format and the panel number can be ascertained.

Step 2. Find the approximate location of the property of the client.

Step 3. Determine the specific location of the building to be insured by starting with the flood map scale, and then refer to a plat map of the property, a tax assessor's map or the property description found on the deed in order to determine the dimensions of the property. Convert the dimensions to inches, using the flood map scale and measurements on the map panel.

Step 4. Once the property to be insured has been determined, identify the building location and look for the Zone label. Zones are labeled on the map and are sometimes separated by white boundary lines. The building is located in an SFHA if the Zone label begins with "A" or "V" and will be shown as shaded areas.

Step 5. Identify the BFE at the property location by referring to the BFE lines that are shown on the map that are the closest to the subject property. If a property is located between two flood elevation lines, use interpolation to determine the BFE. It should be noted that AO Zones do not have BFE information. Unnumbered A Zones may have estimated BFEs, but would not be provided on FIRMs.

Once the exact location has been determined, an agent must make sure that the mailing address is the same as the property, but if they differ, use the property address only.

RATING PROCEDURE

After the location has been established, the next step is to determine which NFIP program phase that the community is in–which would either be the Emergency Program or the Regular Program. These programs have different rate tables, and the information can be found in the Community Status Book (CSB) on FEMA's web site http://www.fema.gov/fema/csb.shtm

Look at the "Date of Entry" column. If there is an "R" shown, then the community is in the regular program. Some communities are eligible for premium discounts under the CRS. To see if a community is eligible, see the CRS Section in the Flood Insurance Manual for a list of eligible communities, and their corresponding discounts. (See the first part of this Section)

The next step is to use the date of the building's construction in order to determine whether it is Pre-FIRM or Post-FIRM. For reference, the date of construction/substantial improvement for insurance purposes is the date the building permit was issued, provided the actual start of the construction, repair, reconstruction or improvement was within 180 days of the date of the permit.

Note: Rules governing the date of construction for a manufactured (mobile) home are different from a standard building and it will also depend on the location of the home.

After determining the flood Zone in which the building is located (see above), it has proven valuable to double-check the flood Zone involved by taking another look at the FIRM.

OCCUPANCY TYPE

This is usually easy—residential or non-residential. The type of dwelling is used to determine the type of policy applicable.

DWELLING POLICY

The Dwelling policy is used to insure building and/or personal property on a single family or two-to-four family dwelling, and it can also be used to insured individually owned single family dwelling units in a condominium unit.

GENERAL PROPERTY POLICY

A General Property Policy is used to insure non-residential buildings and other residential structures that are not classified as single family or two-to-four family dwellings, such as apartment buildings with five or more families, motels, retail stores, municipal buildings, churches and hospitals.

RESIDENTIAL CONDOMINIUM BUILDING ASSOCIATION POLICY (RCBAP)

The RCBAP is used to insure condominium buildings in the name of the association. They must contain one or more residential units in which at least 75% of the total flood area within the building is residential without regard to the number of units or number of floors.

Eligible associations can cover the building, all units within the building, and improvements within the units under the RCBAP. Flood damages to building elements that are covered, including those within the units, are settled on the replacement cost basis. There are some exceptions, such as applicants and carpeting, which are noted later in the text (Policy Section VIII General Conditions, V-Loss Settlement, 4. Actual Cash Value Settlement [page 17 in RCBAP]).

PREFERRED RISK POLICY (PRP)

The PRP is different from other flood insurance policies inasmuch as it automatically includes building and contents coverage as a set percentage and set deductible for buildings and contents, both. It is a low cost policy that is available to eligible residential and non-residential property owners and residential & non-residential renters in low-to-moderate flood risk area, and who have acceptable loss history. This policy is particularly easy to write (See Flood Insurance Manual).

NOTE: These various policy forms and their usage will be discussed in more detail later in this text.

AREAS OF BUILDINGS

Where the contents are located in an insured building—area of a building that may be insured or excluded—must be considered at time of application.

BASEMENT

The definition of basement for flood insurance purposes is "any area of the building, including any sunken rooms or sunken portion of room, having its floor below ground level (subgrade) on all sides. There can be "daylight" basements where one wall is on ground level, or basements that are entirely or mostly underground.

ENCLOSURE

An enclosure is defined as that portion of an elevated building below the lowest elevated floor that is either partially or fully enclosed by rigid walls. Which brings us to:

ELEVATED BUILDINGS

An elevated building is a building that has no basement and that has its lowest elevated floor above ground level by foundation walls, shear walls, posts, piers, pilings or columns. These are often seen on seashore or beach areas.

THE STANDARD FLOOD INSURANCE POLICY

The Standard Flood Insurance Policy (SFIP) is a single peril policy—"flood" being the single peril obviously—that pays for direct physical damage to insured property. The Federal government backs these policies that cover only flood damage.

Additional Living Expenses, Loss of Use, or Loss of Income coverages are NOT included under the SFIP.

GENERAL EXCLUSIONS

Regardless if the general condition of flooding was the proximate cause of the loss, there are certain perils that are not afforded coverage under the SFIP:

Theft;
Fire;
Windstorm and wind;
Explosion;
Earthquake;
Landslide;
Land subsidence;
Sinkholes;
Destabulation or movement of land that results from accumulation of water in subsurface area; or
Gradual erosion.

There are several other situations where the policy does not provide coverage, such as the pressure of ice causing the loss, freezing or thawing, etc. These are shown in the discussion of the policy form.

COVERED PROPERTY

The Standard Flood Insurance Policy Form will be discussed in detail later, but for now, Coverage A - Building Property, states that a dwelling is considered walled and roofed if it has in place at least two walls and a roof. Additions and extensions attached to or in contact with the dwelling by means of an exterior wall, a solid load-bearing integrated wall, a stairway, and elevated walkway to the roof. Additions and extensions may be connected to the building and may be separately insured (think detached garage with covered walkway from residence). If the additions and extensions are attached to and in contact with the building by means of a common interior wall that is not a solid load-bearing wall, is always considered as part of the dwelling and cannot be separately insured.

A detached garage (without a connecting walkway) may also be insured for no more than 10 percent of the limit of liability on the dwelling. It should be pointed out that this insurance is optional, but if is used, is proportionately reduces the building limit of liability. Note, however, that any detached garage that is used or held for residential purposes (such as an apartment above a garage), or for business or farming purposes, is not covered. When writing farm property, the machinery barns would not be covered, but a garage housing the family car and pickup would be.

BUILDING UNDER CONSTRUCTION, ALTERATION OR REPAIR

Materials and supplies used for the purpose of construction, alteration or repair of the dwelling, or a detached garage while the materials and supplies are not insurable unless they are contained within an enclosed building on the premises or adjacent to the structure. A building under construction, alteration or repair at the location described in the policy, is insured.

MANUFACTURED HOMES

A manufactured home or a travel trailer as described in the policy definitions, are covered, and if located in a SFHA it must be anchored properly according to the requirements in the policy.

PROPERTY ITEMS IN A BASEMENT

In any Zone, certain building property items that are in a basement are covered, such as:

Sump pumps.
Cisterns and water contents.
Drywall for walls and ceilings in a basement, and the cost of labor to nail unfinished and unfloated items, (not taped to the frame) to the framing.
Electrical junction and circuit breaker boxes.
Electrical outlets and switches.
Elevators, dumbwaiters and related equipment, unless the related equipment was installed below the BFE after September 1987.
Fuel tanks and fuel contents.
Furnaces and hot water heaters.
Heat pumps.
Nonflammable insulation in the basement.
Pumps and tanks used in solar systems.
Stairways and staircases attached to the building, not separated from it by elevated walkways.
Hot water heaters.
Water softeners and their chemicals, water filters and faucets that are part of the plumbing system.
Well water tanks and pumps.
Required utility connections for any item in this list.

Also covered are footings, foundation, posts, piling, piers and other foundation walls and anchorage systems that are required to support a building. Also, the clean-up of covered items in a basement after flood loss is covered by the policy.

PROPERTY ITEMS IN AN ENCLOSURE IN SFHA

Building property items that are located in an enclosure below the lowest elevated floor of an elevated Post-FIRM building in an SFHA are covered in the same manner as building items in basements, except that insulation and drywall are not covered. Clean-up is covered.

OTHER COVERAGES

The SFIP will pay up to $1,000 for costs incurred to protect the insured building from flood, or from the imminent danger of flood. Coverages such as coverage that is provided for loss avoidance measures (sand bagging, etc.) are explained in detail in the policy.

The SFIP will pay for reasonable expenses to move insured property to a place other than the described location. Plus, any labor that is hired to move such property will be paid or reimbursed at the Federal minimum wage.

REMOVAL OF DEBRIS

The expenses involved in removing debris caused directly by a flood will be covered by the NFIP; however this is at the option of the insured as any such payment will reduce the flood insurance policy limit accordingly.

"Debris" so covered may include debris that is not owned by the insured but is on or in the insured property, and it covers debris from the insured's property, regardless of where it may be located. Labor used to remove such debris will be paid or reimbursed at the prevailing Federal minimum wage rates.

IMPROVEMENTS AND BETTERMENTS

If the tenant has personal property coverage, the SFIP will cover a cooking stove, range and refrigerator if the items are owned by the tenant. Ten percent of personal property coverage is the maximum that will be paid to cover other tenant installed improvements.

PROPERTY NOT COVERED

The policy form lists property that is not covered in detail, but as example, the following items which include building and personal property items, are excluded under all three policy forms:

Fences, retaining walls, sea walls, bulkheads, wharves, piers, bridges and docks.
Buildings or units, including all of their contents, if they are more than 49% of the actual cash value of the building, or if the unit is below ground unless the lowest level is at or above the Base Flood Elevation (BFE) and is below ground because of the earth being used as insulation material in conjunction with energy efficient building techniques.
Land values, lawns, trees, shrubs, plants, growing crops, or animals.
Underground structures and equipment, including wells, septic tanks, and septic systems.
Property in the open.
Walks, walkways, decks, driveways, patios, and other surfaces located outside the perimeter, exterior walls of an insured building.
Self-propelled vehicles or machines, including their parts and equipment.
Recreational vehicles other than travel trailers described in the policy, whether they are affixed to a permanent foundation, or are on wheels.
Aircraft and watercraft, including their furnishings and equipment.
Hot tubs and spas that are not bathroom fixtures, and swimming pools, and their equipment (such as heaters, filters, pumps, pipes, etc., wherever they may be located).

SPECIAL ($2,500) LIMITS

There is a special $2,500 maximum limit that applies to all of the property by class, therefore if any item is damaged, the maximum loss settlement amount would be $2,500. If all such items were damaged, the maximum loss settlement amount would be $2,500. The reason for this limit is that these items would typically be covered under a valuable items policy. These items include

Artwork, photographs, collectibles or memorabilia, including but not limited to porcelain or other figures, or sports cards;
Rare books or autographed items;
Jewelry, watches, previous and semiprecious stones, or articles of gold, silver or platinum; furs or any article containing fur which represents its principal value;
Personal property used in any business.

DECKS

Decks are treated separately in the policy and the SFIP specifically excludes deck coverage. However, stairways and staircases are covered if they are directly attached to the insured building. Stairways and staircases that are attached to decks or walkways for ingress and egress are covered. The maximum allowance for steps and landing is 16 square feet.

ADDITIONAL LIVING EXPENSE

Additional living expenses, loss or use, or loss of income coverage are not included under the SFIP.

INCREASED COST OF COMPLIANCE

Regular program policyholders in Special Flood Hazard Areas can get up to $30,000 to assist in paying the costs attributed to bringing their home or business into compliance with their community floodplain ordinance.

STUDY QUESTIONS–CHAPTER FIVE

1. To become part of the Community Rating System, the community must be in full compliance with the NFIP and

A. be in the Emergency phase of the program.

B. be in the Regular phase of the program.

C. be either in the Regular or Emergency phase of the program.

D. post a substantial bond with the NFIP.

2. All CRS communities must maintain completed FEMA elevation and floodproofing certificates for all new and substantially improved construction in the Special Flood Hazard Area

A. prior to the date of application for CRS classification.

B. after the date of application for CRS classification

C. in the County Clerk's office under lock-and-key.

D. but the agent cannot have access to such classification.

3. Flood Insurance Rate Maps (FIRM) show

A. the high-risk areas A & V, which are also known as Flood Hazard Areas (SFHAs).

B. only SFHAs.

C. elevation of all buildings within a particular Zone.

D. the fastest method for rescue personnel to get to an area that has been flooded.

4. Pre-FIRM buildings are those that started construction or had substantial improvement prior to the effective date of the initial FIRM for the community, or

A. December 31, 1974, whichever is later.

B. December 31, 1974, whichever is earlier.

C. on a pre-arranged and agreed upon date as chosen by the community.

D. prior to World War II.

5. In order for the community to meet FEMA's floodplain management requirements, it must ensure that the lowest flood elevation of every substantial improved and newly constructed property

A. equals or exceeds the BFE.

B. has no history of flooding.

C. be protected by a berm or wall if lower than previous high-water measurements.

D. be excluded from coverage.

6. For rating purposes, after the location has been established, the next step is to determine which NFIP program phase that the community is in, which would be

A. either BFE or SFHA.

B. preliminary or established.

C. WYO or FEMA.

D. the Emergency Program or the Regular Program.

7. A low cost policy that is available to eligible residential and non-residential property owners and residential & non-residential renters in low-to-moderate flood risk area, and who have acceptable loss history describes

A. a Dwelling policy.

B. a General Property policy.

C. an RCBAP.

D. a Preferred Risk policy.

8. That portion of an elevated building below the lowest elevated floor that is either partially or fully enclosed by rigid walls is the policy definition of

A. basement.

B. an enclosure.

C. parking garage.

D. a first floor.

9. A manufactured home or a travel trailer as described in the policy definitions, are covered, but if located in a SFHA

A. it must be excluded from coverage.

B. it must not have any crawl space or other space under the floors.

C. it must be anchored properly according to the requirements in the policy.

D. it cannot have aluminum frame or exterior.

10. Decks are treated separately in the NFIP policy and the SFIP specifically excludes deck coverage, and stairways and stair cases

A. are covered only for the stairs that are on the second floor.

B. are covered whether attached to the building or not.

C. are covered if they are directly attached to the insured building and if they are attached to decks or walkways for ingress and egress are covered.

D. are specifically excluded from any coverage.