Flood Insurance 101: Part 1

– Hello, my name is Diana Herrera, and I am the Regional Insurance Specialist in FEMA Region VIII in Denver, Colorado We're here today to talk about flood insurance 101

We're gonna talk about some basic concepts, terms, that are being used in the National Flood Insurance Program I recently came back from a deployment handling the devastating floods that they had in Louisiana At the same time, we were having Hurricane Matthew along the east coast Property owners were still in recovery phase Many of them had no flood insurance

So what we're gonna talk about today is how you, as the insurance agent, or any other stakeholder that we have, might be able to address some of the issues, or might be able to provide general information to your clients, to your fellow coworkers, to anybody else, about the National Flood Insurance Program And this is a very basic course, and it's not gonna cover everything We have a flood insurance manual, we have guidance that is available on FEMA's website at FEMAgov, where you can go for more information These are just basic concepts and terms

So as an insurance agent, have you ever said, or has your client said, they don't need flood insurance, They don't want flood insurance? Or have you told your client it's not covered; you're not in a flood area, you're not in a flood zone, it's not available, when in fact it is Or have you ever told your client, it's never gonna flood? I wish I had a dollar every time somebody said: I live on a hill, and it's never gonna flood In 2013, our Colorado floods out here were devastating for people who live on a hill So how are you going to feel, when it happens to your client, or even when it happens to you? In our Louisiana flooding, we had many insurance offices who suffered damage one, two, three, ten feet of water in their offices, and they were not prepared for it But what you need to do as an insurance agent to protect your client, is what we're gonna talk about today

So your job as an insurance agent is to identify what risks your clients are exposed to Whether it's fire, flood, earthquake, tornado Your job is to look at those risks and to provide insurance in order to cover that risk, because you're counseling to them to not have insurance When those risks happen, it becomes a very emotional, physical, and financial liability to your client So they need to cover their risk, and a lot of them feel like it's not gonna happen to them

But you just never know So if they say they don't need it, they don't want it, they only want what the mortgage company requires them to have You need to council them of what their risk is, and then have them sign a disclaimer to be sure that you protect yourself, and your errors and omissions So the New York Times did a recent article in December, by Ron Lieber, that addressed some of the comments that he had talked to some people who had been damaged by Hurricane I should say Super Storm Sandy because it was really a different kind of storm A lot of property owners thought they weren't at risk, didn't have coverage, and only had federal disaster assistance to help them recover And in many cases, that federal disaster assistance is not enough for them to bring their home back to the way it was before, bring their business back to the way it was before So they had a big financial loss in order for them to try and recover, and in a lot of cases, people just don't come back

They just leave, they've had enough One of the things that you can counsel your client on, is to have a team And there are several members of that team that they might want to contact First person that they seem to want to talk to, is the real estate professional Particularly if they're buying a new home, or buying a business

They need to know what their risks are; what are they looking at? So the real estate is their first line of defense, when it comes to what risk exposures they have That real estate agent should be able to advice them as to what is their flood zone, are they in a high-risk, medium-risk, or a low-risk; and what that means Has it ever flooded? States have disclosure laws that says if that property's been flooded, they need to disclose that The next person they want to talk to is the community flood expert, the floodplain manager The floodplain manager can be found in the permitting office, or could be found in the zoning, or planning, or community development

So, whoever issues permits for the floodplains that's who they need to talk to That person is going to be able to provide information as to whether or not there are any map changes, whether the risks are changing So that they can take appropriate steps Particularly if they're building new, and that new construction might want to be built to a higher standard in order to meet what the upcoming maps are going to show as the risk being for flood in that particular area Early on the property owner needs to contact their insurance professional

And that insurance professional, too needs to know what's going on in the community in regards to map changes They also need to know about the National Flood Insurance Program; what are the rules, what are the requirements? Particularly if they are required to get certain documents in order to write flood insurance policy Maybe we'll need an elevation certificate to determine how high the structure is Rating may be better if the elevation of that lowest floor is higher than what the requirement is The higher you go, the lower the premium

For every foot, it changes it about 50% of the premium So it's good to look into that An elevation certificate may help them, not gonna hurt them, but it's something that you might want to look into Another document that they may need to obtain is a floodproofing certificate Floodproofing has to do with residential basements in certain communities in the country, that's been approved for residential basement floodproofing

Your agent should be able to identify what communities those are in order to determine whether or not a certain document is going to have to be obtained, in order to show that floodproofing If it's a non-residential structure, then it's been dry floodproofed, meaning it's water-tight, there's gonna need to be a certificate that's signed by an engineer that's going to need to be provided in order to show that documentation when that agent writes that application Agents then is going to have to do the application, collect the premium, give you appropriate documents that need to go to the mortgage company to show that flood insurance has been obtained for the amount, at least for what the mortgage company requires But you know what? You really shouldn't work with that amount You need to look at the value of the structure

Because a lot of times, you get, like we had in Louisiana, like we had in the Hurricane Matthew area; You can pick any flood in any state over the last five years, and you may have some pretty deep flooding in there, that can be five, ten feet high, that it's going to damage more than what you got for the mortgage company Look at the value of the structure, and don't forget to insure your contents The current agent needs to disclose to you certain things about that property He should be able to, if he's had a flood, he should be able to advise you of that information But one of the things that FEMA does is to, on an annual basis, is provide a claims statement historically of what has happened for that particular property

The Privacy Act does not allow FEMA to disclose claims information to somebody that does not own that property So one of the ways they can find out, is to ask the current owner, has it flooded, how deep was the flooding, did they have flood insurance, was it repaired, was it repaired correctly? So that information is gonna have to come directly from the current owner But one of the things that they can do is talk to the neighbors Neighbors will be glad to tell them what's going on in that community Whether there's been any flooding, whether there's been any other type of risks there that might effect decisions being made as to whether or not that's really a home, or a risk that you want to have

And it's not that bad to be in the high-risk areas, you just need to be sure that structures are built correctly, if they're newer structures And that, if they're older structures, to be able to keep the rating, the subsidized ratings that we talked about, that we talk about for that particular property So, since this is the National Flood Insurance Program, let's define the term: Flood Because it might not be the same flood that you're thinking So, under the NFIP, a flood is surface water from any source, does not include seepage, does not include sewage backup, unless there's a general condition of flooding

So a general condition of flooding is: water dispersed over two acres, or two properties And it's not just the neighbor's property, it could be the street So when we've got surface water, over two acres, or two adjacent properties That's called a flood, in the National Flood Insurance Program It also includes mudflow, now mudflow again might be a little

What you're thinking might not be what's covered In a mudflow, it's got to be some liquidity of flowing mud So I liken it to, tip over a milkshake, milkshake kinda oozes out, it's got some consistency to it, and just kinda moves on down the line

That could also be a flood under the National Flood Insurance Program So let's talk about some insurance terms and concepts Couple of things we want to talk about when it comes to value, actual cash value Is the cost to replace minus applicable depreciation That depreciation could be very subjective

You are a single person, or you're a married person, you have no children, you have no pets; the wear and tear on your contents are not gonna be as heavy as somebody who has lots of kids, lots of pets, and they really wear their contents down So when there's a loss, whether it's for flood, whether it's for fire, whatever They look at the actual cash value of the property and adjust it accordingly So we talk about replacement cost, it's the cost to replace today, not what it was when you bought it Market value, we use market value when we're looking to determine whether or not a structure has been substantially damaged or is going to incur a substantial improvement

So when we're looking at that, we're looking at the market value, which is the cost of what somebody will pay for something So when you buy a house, you're looking at the market value of a structure And then we compare that to the cost of damage, or the cost of the improvement, and it is 50% or more, certain regulations require that that structure be brought into compliance to current floodplain management regulations Need to talk to your local official, floodplain manager to determine whether or not the damage or improvement is gonna hit that 50% mark or more We also look at market value when we're looking at increased cost of compliance, which is a coverage under the policy

When we talk about increased cost of compliance, it's monies to help reach that mitigation activity Risk We risk things every day Walking across the street is a risk In the insurance industry we're lookin' at perils: flood, fire, explosion, earthquake, tornado, wind storm, hurricane damage

Those are risks And as an insurance agent, you need to assess those risks for that individual property owner When we look at doing our rates, we try and spread that risk across the country I know a lot of agents and a lot of property owners think that they're subsidizing people who live along the coast, or people who live along the river But the risk is the same, the risk for flooding, or the probability of flooding, occurs the same, whether your in North Dakota, California, Texas, or Florida

The risk is there So we try and spread that risk across the country so that the cost is more evenly distributed This is a single-peril policy, we insure the peril of flood It's written through a licensed insurance agent, we rely on the state in which the agent is located to make sure that agent is in good standing, and that that insurance agent knows what he's doing, is licensed to do what he's supposed to do When it comes to flood insurance though, insurance agents sometimes say, I don't wanna do it, or it's too hard

But, you know, the more you do it the more proficient you become at it You should be writing flood insurance on every risk, or at least offering it on every risk that you write, because the risk for flooding occurs everywhere You cannot get insurance directly through the National Flood Insurance Program, or through FEMA It's written through one of our Write Your Own companies Those are companies who have an agreement with FEMA to write policies on behalf of the federal government

And they're allowed to write the risk, collect a percentage of that, and to handle the claims and the customer service when something happens When an insurance agent writes a policy, he turns it over to an underwriter to make sure that it's done correctly, all the proper documentations been received, and that premium is accurate So when we talk about premium, there's two things we look at We look at actuarial rating or subsidized rating I'm gonna take the subsidized rating first

So when the program started back in 1968, Congress said, "Well you know what? "We really can't charge property owners "who did not know what the risk was, "who did not know how they should build, "and built where they wanted to build, "the way they wanted to build" So the program subsidizes those properties And those property owners only pay a certain percentage of what is called the actuarial rate, of what it would actually cost to handle a claim for that particular risk So our subsidized premiums typically are those homes that were built before the risk was identified for the community Actuarial rating are those that are built to a certain standard, and have to have their lowest floor at or above a certain elevation

We call that elevation the Base Flood Elevation And that's how deep the water's going to get during that base flood And that base flood determination is different for every community So when a claim happens, the company will send an adjuster, who will look at the damage, make an assessment, and turn that assessment over to the company for review and for payment We wanna make sure that that adjuster is providing the best price, or the best coverage for the damage that property owner as incurred

So we take very seriously the premise that we want to pay you for what damage has occurred to your property So where do you get flood insurance? Well it's written through licensed agents in the state in which the property is located We wanna be sure that the agent writes property and casualty, is in good standing with the state licensing department, that must meet certain mandatory training requirements, not only for the NFIP but for the state So who does the insurance agent write the coverage through Well, we have 70 plus companies that an insurance agent can contract with to write the flood insurance through, or he can write the policy through our direct side, through our direct servicing agent which is a contractor we that mete out every five years or so

So if you need flood insurance, contact your insurance agent, contact FloodSmartgov Type in your zip code and see if we have an agent that has been put on our list for writing flood insurance; who has taken classes, who has taken continuing education, who is up to date on what the program is doing, and is very familiar with our rules and regulations

Source: Youtube

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