Section 1304 of the 1968 Act authorizes the Director of FEMA to establish and carry out “a national flood insurance program which will enable interested persons to purchase insurance against loss resulting from physical damage to or loss of real property or personal property” resulting from flood. Flood insurance provides the mechanism by which floodplain occupants are compensated for flood damages. Flood insurance also provides a way for some of the financial burden of flood losses to be removed from taxpayers, such as for Federal disaster assistance and casualty loss deductions under Federal income taxes.
The number of policies in force in the United States has increased from about 95,000 before the Flood Disaster Protection Act of 1973, to 2.2 million in 1989, to over 4.3 million currently. Any property owner of insurable property may purchase flood insurance coverage, provided that the community in which the property is located is participating in the NFIP. The amount of flood insurance coverage in force as of March 31, 2002 is over $606 billion.
The National Flood Insurance Fund (NFIF) is the instrument through which the Federal Government fulfills its financial responsibilities for the NFIP. In fiscal year 2001, FIMA took in about $1.5 billion in revenue, mostly from insurance premiums and a $30 Federal Policy fee on each policy sold or renewed. Revenues from insurance premiums are used to pay losses, pay interest to the Treasury, service the policies, and pay Increased Cost of Compliance claims that provide financial resources for protecting buildings from future flood damages. Revenue from the Federal Policy Fee supports almost all the flood mapping and floodplain management activities of the Program including the Flood Mitigation Assistance program.
FEMA works closely with the insurance industry to facilitate the sale and servicing of flood insurance policies. Flood insurance under the NFIP is sold to owners of property located in NFIP communities through two mechanisms: 1) through state-licensed property and casualty insurance agents and brokers who deal directly with FEMA; and 2) through private insurance companies with a program created in 1983 known as “Write Your Own” (WYO).
The WYO Program was started to increase the NFIP policy count and geographic distribution of policies by taking advantage of the private insurance industry’s marketing channels and existing policy base to sell flood insurance. Eighty-six private insurance companies issue policies and adjust flood claims in their own names under the NFIP. The insurers receive an expense allowance and remit premium income in excess of this allowance to the Federal Government.
FEMA pays losses through a letter of credit and sets the rates, coverage limitations, and eligibility requirements. The premium charged for NFIP flood coverage by a WYO Company is the same as that charged by the Federal Government through the direct program. Currently about 95% of the flood policies issued under the NFIP are written through the WYO Program.
The NFIP is not the only source of flood insurance. Businesses have been able to purchase flood insurance under Difference In Conditions policies from some insurance companies over the years. Flood coverage for residential homeowners has been more difficult to acquire from the private insurance market. The often-catastrophic nature of flooding has kept most insurers, outside of the NFIP, from writing this coverage. There are companies, such as Lloyds of London, that will, on a limited basis, provide flood insurance to some properties.
The Standard Flood Insurance Policy (SFIP) specifies the terms and conditions of the agreement of insurance between FEMA or a WYO company as the Insurer and the Insureds. Insureds in NFIP communities include owners, renters, builders of buildings that are in the course of construction, condominium associations, and owners of residential condominium units.
"Flood" is defined in the SFIP, in part, as:
“A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from overflow of inland or tidal waters, from unusual and rapid accumulation or runoff of surface waters from any source, or from mudflow.”
The SFIP is issued on one of three available policy forms, depending on the occupancy of the building, to provide coverage for the peril of flood.
Sections 1305 of the 1968 Act establish the scope of the flood insurance program for eligible structures. As a priority, the 1968 Act requires that flood insurance be made available to 1-4 family residential buildings, small businesses, and churches. It gave permission after study to extend flood insurance to other residential properties, other business properties, agricultural properties, properties occupied by private nonprofit organizations, and properties owned by State or local governments. Currently insurance is available for all these types of properties and their contents with limited exceptions. Property owners in NFIP communities may purchase flood insurance whether the building or its contents is located in or outside the floodplain.
In order to be eligible for flood insurance, a structure must have at least 2 solid walls and a roof, be principally above ground, and not entirely over water. This includes manufactured (i.e., mobile) homes that are anchored to permanent foundations and travel trailers without wheels that are anchored to permanent foundations and are regulated under the community's floodplain management and building ordinances or laws. Contents of insurable walled and roofed buildings are insurable under the policy as a separate coverage.
Buildings entirely over water or principally below ground, gas and liquid storage tanks, animals, birds, fish, aircraft, wharves, piers, bulkheads, growing crops, shrubbery, land, livestock, roads, machinery or equipment in the open, and generally motor vehicles are not insurable. Most contents and finishing building materials located in a basement are not covered. Similarly, this coverage limitation applies to enclosures below the lowest elevated floor of an elevated building constructed after the FIRM became effective.
Section 1316 of the 1968 Act authorizes FIMA to deny flood insurance "for any property which the Director finds has been declared by a duly constituted state or local zoning authority, or other authorized public body, to be in violation of a state or local laws, regulations, or ordinances". Section 1316 is initiated when an appropriate authority in the State or community submits a declaration to the Administrator of the FIMA specifically stating that the structure is a violation. When the Administrator of the FIMA makes a finding of a valid declaration of a violation, flood insurance is not available and no new policy can be written to cover the building, nor can an existing policy be renewed.
The purchase of flood insurance is also limited in the Coastal Barrier Resources System.
Congress passed laws limiting Federal expenditures in certain coastal areas and designating them as a part of the Coastal Barrier Resources System (CBRS) or as Otherwise Protected Areas (OPAs). In these areas, there is a prohibition for the expenditure of most Federal funds. These prohibitions refer to "any form of loan, grant, guarantee, insurance, payment, rebate, subsidy or any other form of direct or indirect Federal assistance," with specific and limited exceptions. Older buildings constructed before dates established by the Coastal Barrier Resources Act of 1982 and the Coastal Barrier Improvement Act of 1990 remain eligible for Federal flood insurance while new construction or substantially improved structures located within these designated areas are not eligible for flood insurance.
Under the 1982 Act, a building in a CoBRA area is eligible for coverage if:
For OPAs:
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 OPAs, subject to all applicable state and local laws, regulations and building codes.
If, at the time of a loss, it is determined that a policy has been inadvertently issued on new construction or substantial improvements located in a CBRS area, any claim will be denied, the policy canceled, and the premium refunded. The CBRS areas are located in nearly 400 communities on the Atlantic and Gulf coasts and along the Great Lakes shores, and are delineated on the communities' flood maps and cover an estimated 3 million acres.
Coastlines can be particularly fragile, and if development damages aquatic habitats, including adjacent wetlands, marshes, estuaries, and inlets that are the habitat for wildlife and ecosystems that support local fisheries and provide recreational areas, can be lost forever.
Unlike other property insurance, agents who write policies under the NFIP cannot “bind” coverage. A purchaser of flood insurance must wait 30 days from the date the application is completed and the premium presented before the policy becomes effective. A change in the waiting period from 5 days to 30 days was included as part of the National Flood Insurance Reform Act of 1994. This addressed a problem encountered where individuals with properties on larger rivers could wait until properties many miles upriver were flooding before purchasing coverage.
There are however a several exceptions to the 30-day waiting period. For example, the 30-day waiting period will not apply when a new flood insurance policy is required in connection with the making, increasing, extension, or renewal of a loan, such as a second mortgage. The 30-day waiting period will not apply when an additional amount of insurance is required during the 13-month period beginning on the effective date of a map revision. Also, the 30-day waiting period does not apply when a lender discovers that a loan that they have made is in a SFHA and is required to carry flood insurance under the Mandatory Flood Insurance Purchase Requirement.
Under the NFIP there are maximum amounts of coverage available under the Emergency Program and the Regular Program. Under the Emergency Program, non-actuarial, federally subsidized rates in limited amounts are available prior to completion of a community’s Flood Insurance Study (FIS). Once more detailed risk data is provided to the community in the form of a FIRM and a FIS, the community is entered into the Regular Program and full limits of coverage are made available. Nearly all participating communities are in the Regular Program, and individuals can purchase flood insurance up to the following amounts.
The average amount of insurance coverage purchased under the NFIP is $131,670, which includes coverage for the building and its contents.
In addition to providing coverage for Building and Personal Property, the SFIP also provides Other Coverage for Debris Removal, Loss Avoidance Measures, and, under the Dwelling Form, coverage for Condominium Loss Assessments if the policy insures a condominium unit. The SFIP includes coverage for Pollution Damage if the damage results from a flood. All of these coverages are provided within the purchased policy limits.
All three policy forms provide Increased Cost of Compliance (ICC) coverage. ICC coverage provides for the payment of a claim to help pay for the increased costs to comply with State or community floodplain management laws or ordinances after a flood in which a building has been declared substantially damaged or repetitively damaged. When an insured building is damaged by a flood and the community declares the building to be substantially or repetitively damaged, thus triggering the requirement to comply with a community floodplain management ordinance, ICC will help pay for the cost to elevate, relocate, demolish, or floodproof (non-residential buildings only) up to a maximum of $30,000. This coverage is in addition to the building coverage for the repair of actual physical damages from flood under the SFIP, but the total paid cannot exceed the maximum limit set by Congress for that type of building.
The maximum limit of $30,000 will help property owners insured under the NFIP to pay for a portion or, in some cases, all of the costs of undertaking actions to protect homes and businesses from flood losses. In addition, an ICC claim payment can be used to complement and supplement funds under other mitigation programs such as the Flood Mitigation Assistance program and FEMA’s Hazard Mitigation Grant Program to assist communities in implementing measures to reduce or eliminate the long-term risk of flood damage to buildings insured under the NFIP. As of November 30, 2001, approximately 689 claims have been paid under the ICC coverage to elevate, relocate, demolish, or floodproof structures for just over $7.5 million.
The 1968 Act separated the flood insurance ratemaking process into two distinct categories: subsidized rates and actuarial rates. Congress authorized the NFIP to offer policies at subsidized rates (at less than full actuarial risk rates) to existing buildings constructed on or before December 31, 1974 or before the effective date of the initial FIRM, whichever is later. Congress concluded that these buildings were built without the occupants’ full knowledge and understanding of the flood risk, and to rate them using the actuarial rates might make the flood insurance prohibitively expensive. FEMA estimates that risks in this class are paying on average only 35 to 40 percent of what the full risk premium should be to fund the long-term expectation of the flood losses to the building. Only such general rating factors as flood-risk Zone, occupancy type, and building type are used to rate these buildings for flood insurance. Even though premiums for policies on existing buildings are subsidized, floodplain occupants pay for at least part of the cost of the insurance and no longer need most disaster assistance. (Note: Subsidized premiums mean that the insured is paying less than their full-risk premium. The difference between this full-risk premium and the amounts the insured pays is revenue that is foregone by the NFIP. There is no annual transfer from general taxpayer revenue.)
In exchange for this subsidized insurance, participating communities must require new construction and substantially improved structures to meet the minimum requirements of the NFIP. The 1968 Act requires that FEMA charge full actuarial rates reflecting the complete flood risk to buildings constructed or substantially improved on or after the effective date of the initial FIRM for the community or after December 31, 1974, whichever is later. Once FEMA identifies the flood risk and makes the information available to communities, actuarial rating assures that those located in such areas bear the full risks associated with buildings in flood-prone areas. The flood insurance rates take into account a number of different factors including the flood-risk Zone shown on the FIRM, the elevation of the lowest floor above or below the BFE, the type of building, the number of floors, and the existence of a basement or an enclosure.
The flood-risk Zone and the BFE are specific factors that can differentiate the flood risk in various areas of the country. For example, FEMA designates certain shallow flooding areas as AO and AH Zones and some riverine areas as A and AE Zones. FEMA designates areas subject to damage by waves and storm surge as V and VE Zones and usually designates coastal areas landward of the V Zone as A and AE Zones. This difference reflects both the lower expectation of loss and our actual loss experience for these Zones.
While FEMA prints rate tables showing all possible flood risk Zones and uses them for the entire country, FEMA does not show the same Zones on every FIRM. For example, communities in Utah or Kansas do not have V Zones because they are not subject to wave action and storm surge. However, where the same Zone designation is used in two different areas of the country, it is because our engineering studies have shown that the degree of risk is very similar.
Policyholders in AE and VE Zones in one State are paying the same rates as policyholders in another State, if the lowest floor elevation of buildings is the same in relation to the BFE. This is because their risk of flooding is statistically the same.
The insurance aspects of the NFIP have important implications for floodplain management. Buildings that comply with community floodplain management regulations pay premiums based on flood insurance rates that are in most cases significantly lower than the subsidized rates charged Pre-FIRM buildings. However, buildings constructed in violation of the community’s floodplain management ordinance pay much higher rates, which can be thousands of dollars a year for buildings substantially below the required elevations. FEMA bases the flood insurance rates for Post-FIRM structures on a building’s exposure to flood damage. Based on our loss experience on older structures built before establishment of NFIP minimum floodplain management requirements, FEMA can generally expect that they will suffer as much as 5 times the flood damage that compliant new structures experience. New buildings with non-compliant ground level enclosures in coastal areas can actually represent risks that are at least as poor as the average older Pre-FIRM buildings.
Claims under the NFIP require, as in other insurance, that the insured file a Proof of Loss. This must be submitted within 60 days of the loss, unless waived by the Administrator of the FIMA. Claims can be adjusted using either an independent adjuster or an adjuster employed by a WYO company. Under all NFIP policies, the insured pays a portion of the loss through the application of a deductible. In FY 2001, the NFIP paid 43,525 claims with an average claim payment of $26,079.
The largest loss payout from a single flood event occurred in June 2001 as a result of Tropical Storm Allison, the NFIP’s first “billion dollar storm.” The second largest flood event in dollars paid was in Louisiana in May 1995 with payments totaling $583,952,604 and the third largest flood event in dollars paid resulted from Hurricane Floyd in September 1999 with payments totaling $433,384,943.
The long-term goal of the NFIP is to be actuarially sound, including consideration for potential catastrophic loss years. In the near term, in establishing a fiscally sound program, the NFIP overall is intended to generate premium at least sufficient to cover expenses and losses relative to what is called the “historical average loss year.” Since the NFIP’s underwriting experience does not include truly catastrophic loss years, the historical average is less than the true long-term average. However, the premium income to the program is made up of two distinct pieces – Pre-FIRM polices charged less than full-risk premiums and Post-FIRM (and other) policies charged full-risk premiums including catastrophic loss considerations.
The NFIP’s historical average loss year is approximately $700 million in loss payments. At this level, FIMA can maintain a Program that is self-supporting for that year. The NFIP has not been capitalized, but generates surplus during less-than-average-loss years and has borrowing authority with the U.S. Treasury to cover losses in the event that policyholder funds and investment income are inadequate. It does not use taxpayer funds to pay claims, operating expenses, or offset any shortfalls in premium from policies paying a subsidized flood insurance rate Having twenty-six percent of policyholders paying significantly less than full-risk premiums impedes the ability to generate surplus or to repay borrowed funds, which depends on levels of annual losses that are highly variable.
However, the possibility of borrowing funds from the Treasury would be present even if all NFIP policyholders paid full-risk premiums should a catastrophic or a series of catastrophic flood events occur. When the NFIP borrows money, it pays the Treasury back with interest. The NFIP paid off the Treasury debt in June 2001 from a high of $922 million in 1999. However, because of the extent of the flooding from Tropical Storm Allison in Texas and Louisiana resulting in over 30,000 claims, FEMA had to borrow funds from the Treasury.
Since 1969, the NFIP has paid $11.9 billion in losses that would otherwise have been paid by taxpayers through disaster assistance or borne by home and business owners themselves. Moreover, NFIP floodplain management and hazard identification activities have significantly reduced the frequency and severity of flood damages to buildings built in compliance with NFIP standards. Structures built to NFIP criteria experience 80% less damage through reduced frequency and severity of losses. The NFIP floodplain management requirements are estimated to save $1 billion per year.
Today, many Americans are either unaware that flood damage is not covered by their homeowner’s insurance policy or they are in denial about the serious flood risks to which they are exposed. Definitive figures on the potential market for flood insurance are difficult to obtain. A conservative estimate is that only one-third to one-half of those in SFHAs has coverage. For a number of flood disasters in the past few years, only 10-20% of the victims in SFHAs had flood insurance coverage. The remaining 80-90% must rely on taxpayer-funded Federal disaster assistance, which is very limited, loans which must be paid back, tax write-offs, or savings to help them recover.
The insurance industry, which has been the major mechanism for the sale of flood insurance since the Program’s inception, has repeatedly stated that the key to selling flood insurance is public awareness on a national scale. Working with them, FEMA has designed and continues to refine flood insurance advertising and promotional activities to educate consumers, heighten awareness, and make the insurance agent’s job easier.
FEMA’s strategy for increasing the number of Americans insured against flood damage includes:
From 1968 until the adoption of the Flood Disaster Protection Act of 1973, the purchase of flood insurance was voluntary. Property owners could make their own decision whether to purchase flood insurance. Unfortunately, the response nationwide to purchasing flood insurance voluntarily was less then enthusiastic. Just over 95,000 policies were in force in 1972, and very few victims from Tropical Storm Agnes that hit that same year had flood insurance.
The 1973 Act mandated flood insurance coverage for many properties. For the first time, regulated lending institutions could not make, increase, extend, or renew any loan secured by improved real estate located in a SFHA in a participating NFIP community unless the secured building and any personal property securing the loan were covered for the life of the loan by flood insurance. Congress established this requirement because, after major flood disasters, it became evident that relatively few individuals in eligible communities who sustained flood damage had purchased flood insurance.
Also, Federal officers or agencies could not approve any form of loan, grant, guaranty, insurance, payment, rebate, subsidy, disaster assistance loan or grant, for acquisition or construction purposes within a SFHA in a participating community unless the building and any personal property to which such financial assistance relates were covered during the life of the property.
The Housing and Community Development Act of 1977, which amended section 202(b) of the 1973 Act, permitted regulated lending institutions to make conventional loans in a SFHA of a non-participating community. It required them to notify the purchaser or lessee of improved property situated in a SFHA of a non-participating community and used to secure a loan being made, increased, extended, or renewed, whether Federal disaster assistance for flood damage will be available.
Furthermore, Section 202(a) of the 1973 Act prohibits Federal officers or agencies from approving any form of loan, grant, guaranty, insurance, payment, rebate, subsidy, disaster assistance loan or grant, for acquisition or construction purposes within SFHAs of nonparticipating communities. For example, this would prohibit mortgage loans guaranteed by the Department of Veterans Affairs, insured by the Federal Housing Administration, or secured by the Rural Economic and Community Development Services. In the case of disaster assistance under the Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, as amended, this prohibition only applies to assistance in connection with a flood.
Following the multi-billion dollar flood disaster in the Midwest in 1993, Congress enacted the National Flood Insurance Reform Act of 1994. One of the purposes of the 1994 Act is to improve compliance with the mandatory purchase requirements of the NFIP by lenders, servicers, and secondary-market purchasers. Congress was concerned over the low level of insurance participation among eligible property owners and resulting increases in Federal disaster relief payments. While FEMA administers the NFIP, it has no responsibility or authority under either the 1973 Act or 1994 Act with respect to lender compliance with the Mandatory Flood Insurance Purchase Requirement – this responsibility falls on the Federal agency lender regulators and secondary-market purchasers though FEMA prepares guidance materials with respect to the NFIP and the Mandatory Flood Insurance Purchase Requirement.
The law requires Federal agency lender regulators to develop regulations to direct their federally regulated lenders not to make, increase, extend, or renew any loan on applicable property unless flood insurance is purchased and maintained. The law also addresses the responsibility of regulated lending institutions and Government-Sponsored Enterprises (GSEs) (i.e., Fannie Mae and Freddie Mac) in providing a notice of and requiring flood insurance coverage for the term of the loan on buildings located in any SFHA in participating NFIP communities.
The 1994 Act significantly tightens the 1973 Act by imposing important new obligations on both mortgage originators and servicers, including mandatory escrow requirements for flood insurance and mandatory provisions for “forced placement” of insurance. Specifically, the 1994 Act requires the force placement of flood insurance if a lender or servicer determines that the building securing the loan is not adequately insured. Also, the 1994 Act grants statutory authority to a lender or servicer to purchase flood insurance for the building and charge a premium to the borrower if the building is in an SFHA. In addition, Congress designated for the first time in the 1994 Act a specific range of regulatory civil monetary penalties that may be imposed administratively when it is found that a “pattern or practice of committing violations” has occurred by regulated lenders.
It is the responsibility of the lender to:
Although the intent of the 1994 Act is to require borrowers to purchase flood insurance, the Act’s directives and prohibitions are directed to federally-regulated primary lenders and to secondary market entities involved in mortgage loan transactions. The flood insurance requirement does not apply to lenders or servicers that are not federally regulated or do not sell loans to GSEs such as Fannie Mae and Freddie Mac or other GSEs.
It is a prerequisite that a designated loan have flood insurance as a condition of closing. If a borrower will not voluntarily obtain coverage and a lender is unable to force place coverage, the lender must deny the loan or exercise the sanction provisions of the loan document if the loan already has been made. A lender cannot accept a borrower’s assurance that he or she will obtain insurance coverage in the future or grant the lender indemnity while seeking coverage. Closing a designated loan without flood insurance coverage in place constitutes a violation of the regulation implementing the Mandatory Purchase Requirement.
Lenders on their own initiative may require the purchase of flood insurance even if a structure is located outside the SFHA. A decision to require coverage under such circumstance is not compelled by statute. Lenders have this prerogative to require flood insurance to protect their investments.
These guidelines can assist an agent in making sure that the client's financial interests are protected, and can help agents in providing vital information to lenders concerning flood insurance needs that go beyond the minimal mandatory requirements, such as information their clients of the importance of contents insurance.
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. Note should be made of the fact that 25% of flood claims occur in moderate to low flood risk areas. Also, Agents should remind property owners of flood risk associated with heavy rains, winter storms, overburdened or clogged drainage systems, and hurricanes.
The NFIP’s Community Rating System (CRS) provides discounts on flood insurance premiums in those communities that establish floodplain management programs that go beyond NFIP minimum requirements. Under the CRS, communities receive credit for more restrictive regulations, acquisition, relocation, or floodproofing of flood-prone buildings, preservation of open space, and other measures that reduce flood damages or protect the natural resources and functions of floodplains.
The CRS was implemented in 1990 to recognize and encourage community floodplain management activities that exceed the minimum NFIP standards. Section 541 of the 1994 Act amends Section 1315 of the 1968 Act to codify the Community Rating System in the NFIP, and to expand the CRS goals to specifically include incentives for reducing the risk of flood-related erosion and for encouraging measures that protect natural and beneficial floodplain functions. These goals have been incorporated into the CRS and communities now receive credit towards premium reductions for activities that contribute to them.
Under the CRS, flood insurance premium rates are adjusted to reflect the reduced flood risk resulting from community activities that meet the three goals of the CRS:
(1) Reduce flood losses, i.e.,
(2) Facilitate accurate insurance rating; and
(3) Promote the awareness of flood insurance.
There are 10 CRS classes: Class 1 requires the most credit points and gives the largest premium reduction; Class 10 receives no premium reduction. CRS premium discounts on flood insurance range from 5 percent for Class 9 communities up to 45 percent for Class 1 communities. The CRS recognizes 18 creditable activities, organized under four categories: Public Information, Mapping and Regulations, Flood Damage Reduction, and Flood Preparedness.
For example, credits are provided for use of future conditions hydrology and more restrictive floodway standards, prohibiting fill in the floodway, and adopting compensatory storage regulations, innovative land development criteria, stormwater management regulations, other higher regulatory standards, and local floodplain management plans. Credits are also provided in the CRS for preserving open space in their natural state and for low-density zoning and for acquiring and clearing buildings from the floodplain and returning the area to open space. The 2002 CRS Coordinator’s Manual includes a new section, “Land Development Criteria,” which specifically credits community land development regulations that limit development in the floodplain or provide incentives to limit floodplain development. Communities receive credits for adopting smart growth land development criteria and for creating open space through their land development process.
There are now over 900 communities receiving flood insurance premium discounts based on their implementation of local mitigation, outreach, and educational activities that go well beyond minimum NFIP requirements. Although premium discounts are one of the benefits of participation in the CRS, these communities are carrying out important activities that save lives, reduce property damage, and protect the natural and beneficial functions of floodplains. These 900-plus communities represent a significant portion of the nation’s flood risk as evidenced by the fact that they account for over 66% of the NFIP’s policy base . Communities receiving premium discounts through the CRS cover a full range of sizes from small to large, and a broad mixture of flood risks, including coastal and riverine.
The CRS – its development and implementation – has benefited from the advice and effort of Federal, State, and local officials, professionals with expertise in floodplain management and insurance, and academics. A multidisciplinary approach led to successful implementation of the program and this same approach has been employed in reviewing and refining the CRS over the last 10 years.
The Flood Mitigation Assistance (FMA) program provides funding to assist States and communities to accomplish flood mitigation planning and implement measures to reduce future flood damages to structures. This program is authorized under the 1994 Act. These funds can be used before disaster strikes.
The FMA program provides funding up to $20 million a year with a 75/25 cost share. Examples of eligible activities for planning grants include conducting local planning meetings to obtain citizen input; contracting for engineering or planning technical assistance; surveying structures at risk of flooding; and assessing repetitive losses . Only projects for mitigation activities specified in an approved Flood Mitigation Plan are eligible for project grants. For example, a community may determine in its plan that acquisition of structures would be the preferred alternative for floodway areas, while elevation may be more appropriate solution in other areas of the floodplain.
The purpose of FMA project grants is to assist States and communities in implementing flood mitigation projects to reduce the risk of flood damage to NFIP-insurable structures. Examples of eligible types of projects include:
To be eligible for funding, a project must be:
The 1994 Act directs FEMA to “make every effort to provide mitigation assistance for mitigation plans proposing activities for repetitive loss structures and structures that have incurred substantial damage.” FEMA is focusing the FMA program on repetitive loss properties. The NFIP’s Repetitive Loss Strategy is to identify properties throughout the country that are most at risk for repeat flooding, and to reduce their exposure through targeted buyouts, relocation, and elevation. Approximately 45,638 repetitive loss properties are currently insured. These buildings are projected to cost the program $200 million per year in claims. New repetitive loss properties continue to emerge each year. FEMA has identified target buildings that are currently insured and have the greatest risk. There are 8,753 buildings with four or more losses, and l, 160 buildings with two or three loses that exceed building value. Most of these target buildings are single-family residences. The limited FMA program funds ($20 million) are a key resource toward achieving this goal.
For projects that directly affect individual structures, such as elevation, acquisition, or relocation, each structure must have a flood insurance policy in force. FMA will be available to States and communities for mitigation activities that may benefit insurable properties not insured under the NFIP. For minor structural flood control projects, the effectiveness of the project can be based on benefits provided to insurable structures not insured under the NFIP.
Since 1996, FMA program funds have been used to acquire 484 flood-prone structures, relocate 16 flood-prone structures, elevate 491 flood-prone structures, and dry-floodproofed 8 floodprone non-residential structures. To date, FEMA has allocated through FMA $97.6 million for projects; $9 million for plans; and $10.8 million for technical assistance.
The predecessor to the FMA program was Section 1362 of the 1968 Act, which was also intended to address existing flood-prone structures. This provision authorized the NFIP to purchase certain insured properties that had been either substantially or repetitively damaged and transfer the land to a public agency for open space. Funds were appropriated for Section 1362 annually from 1980 until 1994, when the FMA program replaced the Section 1362 program. Over the period during which funds were available, approximately 1,400 properties were purchased at a total cost of about $51.9 million.
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.
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.
Flood Insurance is preferable over Disaster Assistance because:
Federal disasters (including SBA disaster loans) require a Presidential declaration—not necessary for flood insurance and claims are paid even if there is no such declaration, plus such loans are more costly than flood insurance premiums. The average Federal individuals and Households award is about $4,000. To qualify for Federal Home Repair Assistance, the home must have suffered minor and repairable damage. Federal Rental Assistance is not available unless the home has been heavily damaged or destroyed. Since most other Federal aid is by loan, there is no loan repayment with flood insurance, which policies are continuous.
1. Any property owner of insurable property may purchase flood insurance coverage,
A. if they can show proof of citizenship.
B. provided that the community in which the property is located is participating in the NFIP.
C. unless they have been the victim of a flood anywhere in the continental U.S.
D. unless they reside in a condominium.
2. Flood insurance under the NFIP is sold to owners of property located in NFIP communities through two mechanisms: through state-licensed property and casualty insurance agents and brokers who deal directly with FEMA; and
A. employees of FEMA.
B. through the internet.
C. through community representatives, usually the County Clerk
D. through private insurance companies with a program created in 1983 known as “Write Your Own” (WYO).
3. "Flood" is defined in the NFIP policy as general and temporary condition of partial or complete from overflow of inland or tidal waters, from unusual and rapid accumulation or runoff of surface waters from any source, or from mudflow of
A. two or more acres of normally dry land area or of two or more properties (at least one of which is your property)
B. owned property of the insured regardless of size or location.
C. property which has been so inundated previously.
D. any property.
4. The flood insurance Form that covers residential buildings of more than 4 families as well as non-residential risks, is the
A. Dwelling Form.
B. General Property.
C. Preferred Risk Form.
D. Residential Condominium Building Association Policy (RCBAP).
5. In order to be eligible for flood insurance, a structure must have at least 2 solid walls and a roof, be principally above ground, and
A. not entirely over water.
B. at any location.
C. be occupied a minimum of 10 months each year.
D. located at least one mile from any free-flowing water or large body of water.
6. A purchaser of flood insurance must wait
A. for 24 hours before coverage is effective.
B. only for the check to clear the bank as the agent can give a binder when the application is completed.
C. 30 days from the date the application is completed and the premium presented before the policy becomes effective.
D. 6 months from the date the application is completed and premiums paid.
7. Certain buildings are eligible for up to $500,000 in building coverage and up to $500,000 on personal property written on the General Property Form, which are
A. residential dwellings of one to four families.
B. non-residential buildings.
C. high-rise condominiums.
D. low-rise condominiums.
8. Increased Cost of Compliance (ICC) provision will help pay for the cost to elevate, relocate, demolish, or floodproof (non-residential buildings only)
A. up to a maximum of $30,000
B. for an unlimited amount.
C. up to a maximum of $250,000.
D. up to a maximum of $100,000.
9. In flood insurance a "FIRM" is
A. the Flood Insurance Rating Manual.
B. Flood Instructions for Rural Matters.
C. Flood Insurance Rating Map.
F. the commission contract with FEMA for insurance agents.
10. Although the intent of the 1994 Act is to require borrowers to purchase flood insurance, the Act’s directives and prohibitions are directed to
A. any bank insured by the FDIC.
B. federally-regulated primary lenders and to secondary market entities involved in mortgage loan transaction
C. savings and loan institutions.
D. privately chartered banks and finance companies.