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PF&M at a Glance Flood insurance A home owner in a land-locked, Midwestern suburb awakes early and goes downstairs to begin his day. Still groggy from a deep sleep, he’s oblivious to his surroundings. As he nears the bottom of the staircase, a new sensation startles him, he hears a splash and realizes that his foot is soaked. Alarmed, he whips his head up and around and sees that his home has been invaded by nearly a foot of water! He then discovers that during the night, a nearby creek had flooded its banks and inundated his neighborhood. When most of us consider flooding and the damage it causes, it’s likely that we think of infamous hurricanes and towns and cities on our country’s Atlantic and Gulf coasts. Certainly those are areas where residents may frequently think about catastrophes. However, flooding should concern far more people in far more locales. Hurricanes are a major source of flood damage, but so is flash flooding caused by sudden heavy rain in parched areas or by heavy, rapid snow melts. The federal National Flood Insurance Program (NFIP) remains the significant, sole source of protection against flood loss. Originally established in the late 1960s under the National Flood Insurance Act, it has been amended in order to deal with various changing coverage concerns. The program is operated under FEMA, the Federal Emergency Management Agency which is, in turn, a division of the Department of Homeland Security. The National Flood Insurance Program offers coverage to any property owner living in a community that has established a flood plan. The chief component of a valid plan is having the area’s vulnerability to flooding determined by creating an area flood map as well as creating a set of zoning and building policies. The latter includes rules on types of construction, required elevation where building is permitted, eligible building materials, and construction reinforcement techniques. The purpose of area flood plans is to encourage acquisition of flood insurance and to mitigate the damage caused should floods occur. The NFIP offers three separate policies for residential, non-residential (principally business) and condominium association risks. There is also the option of a preferred risk policy for buildings with a particularly low exposure to flooding. Besides structural property, the various flood policies also provide protection for certain types of business and personal property, including improvements and betterments. One recent program change has been made to help stabilize the program’s cost. Now, locations that have suffered multiple, substantial flood losses are being classified as Repetitive Loss Structures (RPLs). RPLs are grouped, rated and administered separately from any other insured structures. The change was made in order to aggressively address the groups of risks that have generated the highest portion of flood claims. The government is placing special emphasis on reducing the number of RPLs or, eventually, to charge such property holders higher (actuarially based) premiums for continued coverage. While the program is underwritten by the federal government, its policies are sold and distributed via regular insurance carriers. While more than five million properties are currently participating in the program, that number is only a small fraction of vulnerable properties that should carry flood coverage. Please note that this is only an overview of this coverage. A thorough discussion of this subject may be found in the PF&M Analysis from The Rough Notes Company. Agency OnLine subscribers please refer to PF&M section 490.4-2, National Flood Insurance Program General Property Policy Coverage Analysis for a more in-depth discussion. * |
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