SECTION ONE - BASIC FLOOD INSURANCE TRAINING

NATIONAL FLOOD INSURANCE PROGRAM

Throughout this course, the principle party is the National Flood Insurance Program, (NFIP).

THE FEDERAL EMERGENCY MANAGEMENT AGENCY (FEMA)

The NFIP is administered by the U.S. Department of Homeland Security's Federal Emergency Management Agency (FEMA).

FLOOD INSURANCE REFORM ACT (FIRA) OF 2004

The most recent legislation impacting the NFIP is FIRA, which requires FEMA to

Collaborate with the insurance industry, State Insurance regulators, and other interested parties to establish training and education requirements for insurance agents who sell flood insurance policies;
Inform insurance companies and agents of the requirements;
Publish the requirements in the Federal Register.

INFORMING NEW AND RENEWING POLICYHOLDERS

FIRA also mandates that all new and renewing policyholders be sent certain informational materials, as follows:

A copy of their Flood Policy;
A copy of their Declaration Page;
A copy of the Summary of Coverage;
A copy of the Claims Handbook;
Notification of the Flooding History for their building; and
An acknowledgement Form which the policyholder should sign and mailed back to the NFRIP in the (provided) postage-paid envelope.

BACKGROUND AND HISTORY OF THE NFIP

Historically, the Federal Government has sought to control the flow of the nation's waterways by using structural methods, such as dams, levees, and dikes.

Despite efforts to reduce economic loss through this type of floodplain management, vast sums of money had to be spend through Federal disaster assistance whenever flooding occurred. This problem was compounded by the fact that flood insurance was not readily available to property owners through the private sector.

Generally, the insurance industry is reluctant to provide coverage for the peril of flood because of its catastrophic nature and its propensity to produce an adverse selection of risk.

Through the National Flood Insurance Act of 1968, Congress authorized the National Flood Insurance Program (NFIP), which provides an opportunity for property owners to purchase federally backed flood insurance protection. In order to make such flood insurance available, communities are required to participate in the NFIP by adopting and enforcing floodplain management ordinances to mitigate the effects of flooding upon new or substantial improvements to existing construction.

The Flood Disaster Protection Act of 1973, which placed the mandate on Federal; agencies and entities that regulate lending institutions to ensure that such lending institutions require flood insurance for loans secured by building in high flood risk areas, followed.

The National Flood Insurance Reform Act of 1994, which was the first major change in over 20 years, further strengthened the mandatory purchase requirements. Additional information concerning the law and history of the NFIP is available at
http:www.fema.gov/business/nfip/mpurfi.shtm.

Effective in 1984, private industry property insurance companies entered into an arrangement with FEMA to sell and service NFIP policies. These are called Write Your Own (WYO) companies because they can confirm their flood business to their normal business practices and write NFIP policies under their own names. However, the premium rating structure, policy limits and coverages are determined by FEMA and the same for all companies.

COMMUNITY PARTICPATION

Community participation in the NFIP is voluntary and requires the community to enter into an agreement with FEMAS. Under this agreement, the community adopts its own floodplain management regulations based on FEMA floodplain management guidelines. Such an NFIP participating community enforces its floodplain management guidelines by requiring new construction or substantial improvement to buildings in high flood risk areas to include measures that mitigate flood losses. One such mitigation measure is elevation of the building's lowest floor above the Base Flood Elevation. In exchange, various Federal financial assistance, including Federal disaster assistance, federally backed mortgage loans and Federal backed flood insurance, is available to residents and businesses in the community.

NON-PARTICIPATING COMMUNITY

A non-participating community that has been identified by FEMA as having high flood risk areas, which does not qualify for participating in the NFIP is ineligible for Federal financial assistance. Insurance professionals are usually homeowners and business owners in the community where they sell insurance. Therefore, agents are also stakeholders in floodplain management issues and should obtain additional information at http://www.fema.gov/plan/prevent/floodplain/publications.shtm

The community, in cooperation with FEMA, must also adopt its Flood: Insurance Rate Maps (FIRMS), which are the basis for floodplain management and flood insurance premium rating. The FIRM identifies the low-to-moderate flood risk areas, as well as the high flood risk areas and is maintained by the community officials. The Community Status Book available online lists NFIP Participating Communities, their status as a Regular Program Community or Emergency Program Community and whether they are Non-Participating Communities as http://www.fema.gov/fema/csb/

EMERGENCY PROGRAM

Early in the program, FEMA issued Flood hazard Boundary Maps (FHBM) providing basic flood risk information, which enabled a community to enter the NFIP under the Emergency Program classification.

Property owners in such Emergency Program Communities still are limited to the amount of flood insurance that can be purchased. Following additional flood hazard studies more detailed maps (known as "FIRMS,") were issued enabling the community to enter the Regular Program Community where property owners are eligible for the maximum amount of coverage available under the NFIP.

Today, as mapping technology has improved, communities entering into the NFIP are not required to first become Emergency Program Communities. Instead, most new communities coming into the program are issued FIRMs and become Regular Program Communities. However, agents should be aware that a limited number of Emergency Program communities and FHBM still exist.

PROBATION AND SUSPENSION

NFIP participating communities that fail to enforce the floodplain management guidelines that they have adopted, are placed on probation and can be suspended if they are not able to comply within the required time frame. Policyholder premiums in communities that are on probation will be increased by $50 and if the community is later suspended by FEMA the policy will not be renewed.

Today, most communities participate in the NFIP and most are classified s Regular Program Communities.

COMMUNITY RATING SYSTEM

The Community Rating System (CRS) is a voluntary incentive program that recognizes and encourages community floodplain management activities that exceed the minimum NFIP requirements.

In fact, over 20,000 communities nationwide participate in the NFIP and of those; over 1,000 exceed FEMA guidelines by engaging in additional efforts to protect lives and property from flood damage in their community.

Flood insurance premium rate are discounted to reflect the reduced flood risk resulting from the community actions that meet three CRS goals:

Reduce flood losses
Facilitate accurate insurance rating, and
Promote the awareness of flood insurance

Agents may obtain additional information concerning the community's CRS status and resulting premium discounts, and brochures explaining the benefits of CRS, at
http://www.fema.gov./business/nfip/crs.shtm.

ELIGIBLE/INELIGIBLE BUILDINGS

Insurance may be written only on a structure with two or more outside rigid walls and a fully secured roof that is affixed to a permanent site.

Buildings must resist flotation, collapse and lateral movements.

At least 51 percent of the actual cash value of buildings, including machinery and equipment, which are a part of the buildings, must be above ground level, unless the lowest level is at or above the Base Flood Elevation (BFE) and is below ground by reason of earth having been used as insulation material in conjunction with energy-efficient techniques.

Additional assistance is available from the underwriting department of the Write Your Own (WYO) Company or, for direct business, the NFIP Servicing Agent.

Most buildings are eligible, if construction in compliance with the community's building requirements and located in an NFIP participating community.

Some examples of ineligible buildings include:

Buildings in violation of floodplain management ordinances and 1316 Declaration has been issued.
Buildings over water constructed or substantially improved after 9/30/82.
Container type buildings.
Buildings if 50% of more of the actual cash value is below ground.

COASTAL BARRIER RESOURCES SYSTEM (CoBRA) & OPA

Coastal Barrier Resources System (CoBRA) and Otherwise Protected Areas (OPA) are

Boundaries established and mapped by the Department of the Interior, U.S. Fish and Wildlife Service (FWS).
Identified by backward slanting diagonal lines patters on Flood Insurance Rate Maps (FIRMS)".
Commonly referred to as "CoBRA Zones."
Federally backed flood insurance is not available for new construction or substantial improvement.
Agents should take special care.

For a list of communities that have CoBRA areas or OPA, agents may consult the CoBRA section of the NFIP Flood Insurance Manual.

Agent's can seek further assistance from their WYO Company or the NFIP Servicing Agent.

While FEMA mitigation measures, such as the elevation of buildings in high-risk areas, serve to protect buildings, the damage to fragile coastlines that comes with development is unavoidable.

Buildings can be repaired. However, if damaged by development, aquatic habitat for wildlife and ecosystems that support local fisheries and provide recreational areas can be lost forever.

Coastal barriers are unique landforms that serve as the mainland's first line of defense against the impacts of coastal storms and erosion. Therefore, by law, federally regulated mortgage lending and Federal disaster assistance are not available in these areas.

Federally backed flood insurance is not available for new construction or substantial improvements in CoBRA or OPA.

EXCEPTIONS

There are a few exceptions for the following situations:

Eligibility for Federal food insurance depends upon whether the community in which the building is located as Coastal Barrier Resources Act of 1982 (CoBRA) or Coastal Barrier Improvement Act of 1990 (CBIA) designated areas.

Under the 1982 Act, a building in a CoBRA area is eligible for coverage if the following requirements are met:

A legally valid building permit for the construction of the building was issued prior to October 1983; and
The building was constructed (walled and roofed) prior to October 1, 1983; and
The building was not substantially improved on or after October 1, 1983.

For CoBRA areas:

A legally valid building permit for the construction of the building was issued prior to November 16, 1990; and
The actual start of construction of the building was prior to November 16, 1990; and
The building was not substantially improved on or after November 16, 1990.

For OPA:

A legally valid building permit for the construction of the building was issued prior to November 16, 1991; and
The building was constructed (walled and roofed) no later than November 16, 1941; and
The building was not substantially improved after November 16, 1991.
Or, the building is used in a manner consistent with the purpose for which the area is protected, regardless of the date of construction.

The CoBRA of 1982 and CBIA of 1990 do not prevent private development, private financing, or private flood insurance, if available, in CoBRA areas and OPA. Any such development is subject to all applicable state and local laws, regulations and building codes.

More detailed information about CoBRA is available at:

http://www.fws.gov/habitatconservation/coastal_barrier.htm

WHO NEEDS FLOOD INSURANCE

Who needs flood insurance? Just about everyone. Floods are the most common natural disaster in the United States. Every state and U.S. territory has experienced floods.

An excellent resource for agent information and training opportunities is the NFIP Floodsmart website at

www.floodsmart.gov.

It also contains information of importance to consumers, lenders, real estate agents, states, and local communities, as well as many other partners.

The Cost of Flooding.

Get involved.

People who live near water are not the only ones who experience flooding.

Over 25% of the NFIP claims are paid in low-to-moderate flood risk areas, such as zones B, C, or X.

Therefore, the NFIP recommends that all homeowners, renters, and business owners purchase flood insurance.

MANDATORY PURCHASE OF FLOOD INSURANCE IN HIGH RISK FLOOD AREAS

The Flood Disaster Protection Act of 1973 placed the requirement on Federally regulated lending institutions to ensure that loans secured by buildings located in high flood risk areas are protected by flood insurance.

Zones A and V are high flood risk areas called Special Flood Hazard Areas (SFHAs)

The Mandatory Purchase Guidelines can help the agent more fully understand his or her part in ensuring that the property owner's financial interests are protected. Further, they can assist agents in providing vital information to lenders concerning flood insurance needs that go beyond the minimal mandatory requirements, such as informing their clients of the importance of contents insurance.

Agents may review the Mandatory Purchase of Flood Insurance Guidelines booklet at: http://www.fema.gov/business/nfip/mpurfi.shtm.

RECOMMENDED IN MODERATE AND LOW FLOOD RISKS ZONES

While the mandatory purchase of flood insurance requirement does not apply in moderate to low flood risk areas (B, C, and X Zones), many structures are still at risk.

25% of flood claims occur in moderate to low flood risk areas.

Agents should remind property owners of flood risk associated with heavy rains, winter storms, overburdened or clogged drainage systems, and hurricanes.

WHY FLOOD INSURANCE IS BETTER THAN DISASTER ASSISTANCE

ELIGIBILITY

Federal disaster assistance, including Small Business Administration disaster assistance loans, requires a Presidential declaration. However, most flooding events do not qualify for such a declaration.
Flood insurance claims are paid even if a disaster is not declared by the President.

COST

Disaster assistance loans from the U.S. Small Business Administration are generally far more costly than flood insurance premiums.
The average Federal Individuals and Households Program (IHP) award is around $4,000.
To qualify for Federal Home Repaid Assistance, your home must have eligible relatively minor damage that can be repaired quickly.
You can't qualify for Federal Rental Assistance unless your home has been heavily damaged or destroyed.

OBLIGATION

With flood insurance, there is no payback requirement.
The most typical form of disaster assistance is a loan that must be repaid with interest.
Flood insurance policies are continuous, and are not non-renewed or canceled for repeat losses.

QUIZ

1. The Federal Government has sought to control the flow of the nation's waterways by using structural methods such as:

A. Dams.

B. Levees.

C. Dikes.

D. All of the Above.

2. A community is defined as a political entity that does not have the authority to adopt and enforce floodplain management ordinances for the area under its jurisdiction.

A. True

B. False

3. The eligibility or ineligibility of buildings for flood insurance protection under the NFIP can be determined by:

A. Flood insurance premium rates.

B. Comparing the specific building risk factors with underwriting criteria from the Flood Insurance Manual.

C. Special requirements that apply to manufactured homes and travel trailers in high flood risk areas.

4. Who needs flood insurance?

A. Business owners.

B. Renters.

C. Homeowners.

D. All of the above.

5. Zones A and V are high flood risk areas called Special Flood Hazard Areas.

A. True.

B. False.

Answers to QUIZ:

1D 2B 3B 4D 5A