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“Insurance Storm Stories” Life on the Road With an Insurance Nerd

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					         “Flood Facts for 2007”

          David Thompson
Florida Association of Insurance Agents
         Dthompson@faia.com
                                    1
     HOUSEKEEPING INFO
• Class times: 8:15 a.m. to 12:00 p.m.
• 10 minute break each hour
• Restroom locations




                                         2
 DFS Rule # 69B-228.060(5)(c) Prohibits…


• Sleeping;
• Reading of non-course books, newspapers,
  or other non-course material;
• Using a cellular phone or other electronic
  device except to take class notes or to
  complete mathematical exercises;
• Leaving the class other than during
  authorized breaks.                         >
                                             3
    Unauthorized Entity Issues
• Appropriate pages in the back of your
  textbook.
   – DFS Help Line: 1-800-342-2762
   – DFS Web Page: www.fldfs.com




                                          4
FAIA Web Page




                5
         Links to This Class
• Go to www.faia.com
• Click on “Education”
• Click on “Flood Facts for 2007 Links”   >




                                          6
                The Lingo
• SFHA: Special Flood Hazard Area
   – Flood zones A, V (Grey map areas)
   – Non-SFHA Zones: B, C, X (While map areas)
• BFE: Base Flood Elevation
• SFP: Standard Flood Policy
• PRP: Preferred Risk Policy
• RCBAP: Residential Condominium Building
  Association Policy
• ICC: Increased Cost of Compliance           >
                                              7
      NFIP Required Training
• Federal requirement
   – Flood Insurance Reform Act of 2004
   – Establish minimum training and
     education requirements for all insurance
     agents who sell flood insurance policies
• State enforcement
   – No such requirement in Florida CE law
                                                8
Statistics




             9
      Most Costly Disasters ????
•   Katrina - $15.7B ($95K average loss)
•   Ivan - $1.5B ($54K average loss)
•   T.S. Allison - $1.1B ($36K average loss)
•   Isabel - $472M ($24K average loss)
•   Floyd - $462K ($22K average loss)
•   Rita - $432M ($47K average loss)
•   Andrew - $169M ($30K average loss)       >
                                             10
     Policies per State – Most ???
•   #1: Florida – 2,100,000
•   #2: Texas – 615,000
•   #3: Louisiana – 483,000
•   #4: California – 269,000
•   #5: New Jersey – 210,000



                                     11
    Policies per State – Least ???
•   #46 – Vermont 3,163
•   #47 – South Dakota 3,142
•   #48 – Alaska 2,565
•   #49 – Wyoming 2,406
•   #50 – District of Columbia 1,463



                                       12
         NFIP History &
      Community Participation
• Established in what year????
   – 1968
   – Who was elected President then?
      • Richard Nixon
• Communities must agree to floodplain
  management
• How many communities participate???
   – Over 20,000                         >
                                             13
            NFIP History
• Program revised in 1994
   – Current $250K max was what???
      • $185K
   – Current 30-day wait was what?
      • 5 days



                                     14
         Emergency Program
• Initial phase; No FIRMs
• Higher rates
• Limited coverage
   – $35,000/$10,000 1-4 family
   – $100,000/$10,000 other residential
   – $100,000/$10,000 other

                                          15
          Regular Program
• FIRMs in place
• Actuarially sound rates
• Coverage available
   – $250,000/$100,000 all residential
   – $500,000/$500,000 non-residential



                                         16
    Community Rating System
• Voluntary system
• Class 1 (45%) to class 9 (5%)
• 1,049 communities participate (67% of
  policies benefit)
• Only class 1 city. ????
   – Roseville, CA
   – In case you want to move there…..
                                          17
            Eligible Buildings
•   Two or more outside rigid walls
•   Fully secured roof
•   51% or more above ground level
•   Mobile homes affixed to permanent
    foundation (No weight on wheels). Must be
    anchored if in SFHA


                                            18
           Ineligible Buildings
•   Silos/cisterns
•   Buildings over water – 10/1/82 date
•   Course of construction – 90 day rule
•   51% or more underground
•   Basement/Elevated building enclosures



                                            19
        Ineligible Buildings
• In violation of floodplain management
• Over water, built after 10/1/82




                                          20
   Coastal Barrier Resource Act
• Passed in 1982
• Restricts federal financial assistance
• Two dates:
   – 1983 & 1990
• Newly built or substantially improved
  buildings ineligible for flood coverage

                                            21
  Who Needs Flood Insurance?
• Everyone who doesn’t sign a waiver!
• 20% to 30% of flood losses are paid to
  people who are “not in a flood zone”     >




                                           22
Mandatory Purchase of Flood
        Insurance




                              23
  Mandatory Purchase of Flood
          Insurance
• Applies to federally regulated lenders
• SFHA risks
• The amount of flood insurance must be at
  least equal to the outstanding principal
  balance of the loan or the maximum amount
  of coverage made available under the 1994
  Reform Act for the particular type of
  property, whichever is less.          >

                                          24
The NFIP policy does not provide coverage for losses
to unimproved real estate, i.e., raw land. The lending
regulations provide that … flood insurance coverage
under the NFIP is limited to the overall value of the
building. Accordingly, a lender must evaluate the
amount of coverage required in relation to the
portion of the loan that is associated with the
improved real estate (excluding the appraised value
of the land), or the maximum amount of insurance
available under the NFIP, whichever is less.
                                                 25
This is especially significant in cases where the
loan exceeds the value of the insurable
building(s). Where the outstanding principal
balance of the loan exceeds the value of the
building, the lender should exclude the value of
the land in determining the amount of coverage
needed. When the lender does not take into
account separate valuations of land…and
improvements… the insured may be paying for
coverage that exceeds the amount the NFIP will
pay in the event of a loss. Lenders should avoid
creating such a situation.
                                               26
        Mandatory Purchase
• No coverage if land only loan
• Course of construction – coverage must be
  effective when construction starts
• Coverage required for home equity loans >




                                          27
         Mandatory Purchase
• Lender is free to require coverage outside
  SFHA
• Lender penalties for failure to make certain
  coverage is in effect:
   – Per incident fine
      • $385 (Increasing to $2,000 in 2007)
   – Annual max
      • $125,000                              >
                                              28
         Mandatory Purchase
• 30 day wait except:
   – Initial purchase in connection w/loan
      • Zone is not a factor
      • Refinancing, 2nd mortgages also
        qualify for no wait
   – Initial purchase at re-mapping
• Must escrow flood if taxes & hazard are
  also escrowed                              >
                                             29
         Mandatory Purchase
          Condominiums
• A unit owner’s mortgage lender has no
  direct interest in an RCBAP and is not to be
  named an additional named insured.
• Supply unit owner’s lender with copy of
  RCBAP
• When unit owner is and is not required to
  buy coverage to meet lender guidelines…

                                             30
        Mandatory Purchase
         Condominiums
• Example #1:
  – 10-unit condo
  – $2 million replacement cost
  – RCBAP coverage amount: $2 million.
    (No problem w/$250K x # of units)
  – No unit owner coverage
    required…RCBAP insured to value
                                         31
        Mandatory Purchase
         Condominiums
• Example #2:
  – 10-unit condo
  – $3 million replacement cost
  – RCBAP coverage amount: $2.5
    million….max available under NFIP
  – No unit owner coverage required.
    $250,000 per unit limitation.
                                        32
       Mandatory Purchase
        Condominiums
• Example #3:
  – 10-unit condo
  – $2 million replacement cost
  – RCBAP coverage amount: $1.6m
    (Suffices for 80% coinsurance)
  – $400K shortfall…$40K per unit can be
    required by lender
                                       33
Loss Assessment & Condo Unit
      Owner Coverage
        (Pages 19/20)




                           34
 Condo Unit Owner Coverage (19)
• 5. If you are the owner of a unit and have
  insured personal property under Coverage B
  in this policy, we will also cover your
  interior walls, floor, and ceiling (not
  otherwise covered under a flood insurance
  policy purchased by your condominium
  association) for not more than 10 percent of
  the limit of liability shown for personal
  property on the Declarations Page.         >
                                             35
   Condo Unit Owner Coverage
• 10% of Coverage B built in for building
  items
• Increase the 10% via building coverage
• Reasons to have building coverage
  – No master policy in place
  –Loss assessment                    >

                                            36
  Condo Loss Assessments (20)
• Only for condos, not for other HOAs
• Loss must be from flood, to the building’s
  common elements
• Not all assessments covered…..             >




                                             37
    Assessments Not Covered (20)
•   Resulting from an association deductible
•   Losses to association personal property
•   Buildings insured to less than 80% of value
•   If the assessment coverage plus the amount
    paid by the master policy benefits a resident
    for more than $250,000


                                                38
      Assessments Covered
• Examples:
  – No master policy in place.
  – Damage to a non-insured building
    (Up for debate)
  – Building insured to 80%, total loss.
  – Assessment made for the 20%.         >

                                         39
Damage to Non-Insured Building
• From the NFIP manual, page CONDO 7
   – The Dwelling Form will respond, up to
     the building coverage limit, to
     assessments against unit owners for
     damages to common areas of any
     building owned by the condominium
     association, even if the building is not
     insured,
                                                40
  Before You Tell the Condo
Dweller not to Buy Coverage…..




                             41
How Would You Like This to be
   Your Name in Lights??
• Leonard v. Nationwide
• Hurricane Katrina “wind vs. flood” lawsuit




                                               42
  Judge Rules in Favor of Insurer in Mississippi
           Wind vs. Water Case (8/15/06)

The Leonards filed suit against Nationwide, their homeowners insurer,
after the company paid them around $1,660 for wind damage to their
home that resulted from Hurricane Katrina. They had claimed that their
insurance agent, Jay Fletcher …had represented that all wind and water
damage arising out of a hurricane would be covered by their insurance
policy.

The Leonards, who did not carry flood insurance on their
house, also claimed that Fletcher told them they did not
need it.
                                                                 43
             From the judge’s written opinion

Fletcher sometimes discouraged his clients from
purchasing flood insurance policies. That much is clear
from the testimony of a variety of witnesses, including
Fletcher’s office assistant, Cindy Byrd Collins. There was
enough evidence on this point to warrant the conclusion
that Fletcher, as a matter of habit and routine, expressed
his opinion, when he was asked, that customers should not
purchase flood insurance unless they lived in a flood prone
area (Flood Zone A) where flood insurance was required in
connection with mortgage loans.
                                                     44
          Non-SFHA Zones
• 20% to 30% of claims come from non-
  SFHA policies
• Customer comment:
   – “Am I in a flood zone.”
• Agent response:
   – “When you crossed the state line into
     Florida, you entered a flood zone.”     >
                                             45
         Flood Insurance vs.
         Disaster Assistance
• Made simple:
  – Flood insurance
     • You get to keep the money
  – Disaster assistance
     • You pay the money back      >



                                   46
            SBA Loans/Aid
• Per USA Today on 10/18/05…
• Six weeks after Katrina, 58,000 applications
  for aid received….
• 1,049 processed….
• 58 checks issues….for $533,000             >



                                             47
        Flood Maps & Zone
          Determinations
• http://msc.fema.gov




                            48
  Flood Hazard Boundary Maps
           (FHBM)
• For Emergency Program communities




                                      49
    Flood Insurance Rate Maps
              FIRM
• Regular Program communities
• Official source of flood risk data
• Show zones, BFE, base flood depths




                                       50
      Pre-FIRM & Post-FIRM
• Pre-FIRM
   – Built before effective date of first Flood
     Insurance Rate Map
• Post-FIRM
   – Built after effective date of first Flood
     Insurance Rate Map
   – Compare lowest floor to BFE for rating
                                                  51
    Special Flood Hazard Area
             (SFHA)
• What the customer calls “a flood zone”
• Area where NFIP floodplain regulations
  must be enforced
• Area where mandatory purchase applies
• Zones A & V
• 26% chance of flooding over a 30-year
  mortgage
                                           52
   Base Flood Elevation (BFE)
• The computed elevation to which floodwater
  is anticipated to rise during the base flood




                                            53
Flood Zone Determination
       Companies




                           54
          Three Policies (4)
• 1. Dwelling
• 2. General Property
• 3. RCBAP

• Preferred Risk Policy (PRP)



                                55
         Dwelling Form (4)
• Eligibility
  – 1-4 dwellings with permitted incidental
    occupancies
  – Dwelling unit in a condominium
  – Residential rowhouse/townhouse



                                              56
    General Property Form (4)
• 5+ family residential
• Non-residential buildings




                                57
   Residential Condominium Building
           Association Policy
              (RCBAP) (4)

• Regular program only
• 75% or more space used for residential
  purposes
• If the risk qualifies for the RCBAP, that
  policy must be used


                                              58
     Preferred Risk Policy (4)
• B, C, X zones only; must remain in these
  zones at renewal
• Residential limits
   – $250,000/$100,000
• Non-residential limits
   – $500,000/$500,000

                                             59
        Preferred Risk Policy
            Loss History
• Short version of ineligibility:
   – Two or more claims or federal disaster
     aids may disqualify you from PRP
   – Dollar amount are a factor




                                              60
              SFP to PRP
• Can go back six years to convert SFP to
  PRP
• Why convert???
   – $250,000/$100,000 policy
      • PRP: $317
      • SFP: $950

                                            61
Dwelling Policy Analysis
       (Page 15)




                           62
            Eligibility (15)
• 1-4 family dwelling; or
• Residential condo unit




                               63
II. Definitions (15)




                       64
Flood, as used in this flood insurance policy, means:

1. 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:

a. Overflow of inland or tidal waters;

b. Unusual and rapid accumulation or runoff of surface waters
from any source;

c. Mudflow

                                                        65
Two Acres or Two Premises (15)
• If water covers at least two acres – covered.
• If water touches two properties – covered.
  Not necessary for two structures to be
  damaged.
• Water confined to your premises, must
  cover at least two acres.                   >


                                              66
            Basements (16)
• 5. Basement. Any area of the building,
  including any sunken room or sunken
  portion of a room, having its floor below
  ground level (subgrade) on all sides.
• Coverage for property in a basement is
  very limited!                             >


                                            67
6. Building. (16)

a. A structure with two or more outside rigid walls
and a fully secured roof, that is affixed to a
permanent site;




                                                 68
      Described Location (16)
• 11. Described Location. The location
  where the insured building(s) or personal
  property are found. The described location
  is shown on the Declarations Page.        >




                                            69
             Dwelling (16)
• 13. Dwelling. A building designed for use
  as a residence for no more than four
  families or a single-family unit in a
  building under a condominium form of
  ownership.                            >




                                              70
III. Property Covered (17)




                             71
Coverage A – Building Property (17)

• We insure against direct physical loss by
  or from flood to:
• 1. The dwelling at the described location,
  or for a period of 45 days at another
  location as set forth in III.C.2.b., Property
  Removed to Safety.                            >


                                                72
         Other Structures (17)
• 3. A detached garage at the described
  location. Coverage is limited to no more
  than 10 percent of the limit of liability on
  the dwelling. Use of this insurance is at
  your option but reduces the building limit
  of liability. We do not cover any detached
  garage used or held for use for residential
  (i.e., dwelling), business, or farming
  purposes.                                    >
                                               73
Under Construction (17)




                          74
5. A building under construction, alteration, or
repair at the described location.

a. If the structure is not yet walled or roofed as
described in the definition for building (see II.B.
6.a.) then coverage applies:

(1) Only while such work is in progress; or

(2) If such work is halted, only for a period of up
to 90 continuous days thereafter.
                                                   75
#7. Building Items (18)




                          76
7. The following items of property which are covered under
Coverage A only:

a. Awnings and canopies;

b. Blinds;

c. Built-in dishwashers;

d. Built-in microwave ovens;

e. Carpet permanently installed over unfinished flooring;
                                                            77
f. Central air conditioners;

g. Elevator equipment;

h. Fire sprinkler systems;

i. Walk-in freezers;

j. Furnaces and radiators;

k. Garbage disposal units;

l. Hot water heaters, including solar water heaters;
                                                       78
m. Light fixtures;

n. Outdoor antennas and aerials fastened to buildings;

o. Permanently installed cupboards, bookcases, cabinets,
   paneling, and wallpaper;

p. Plumbing fixtures;

q. Pumps and machinery for operating pumps;



                                                           79
r. Ranges, cooking stoves, and ovens;

s. Refrigerators; and

t. Wall mirrors, permanently installed.    >




                                          80
      Items Below The Lowest
         Elevated Floor (18)
• 8. Items of property in a building enclosure
  below the lowest elevated floor of an
  elevated post-FIRM building located in
  Zones A1-A30, AE, AH, AR, AR/A,
  AR/AE, AR/AH, AR/A1-A30, V1-V30, or
  VE, or in a basement, regardless of the
  zone. Coverage is limited to the following:

                                                 81
(1) Central air conditioners;
(2) Cisterns and the water in them;
(3) Drywall for walls and ceilings in a basement and the
cost of labor to nail it, unfinished and unfloated and not
taped, to the framing;
(4) Electrical junction and circuit breaker boxes;
(5) Electrical outlets and switches;
(6) Elevators, dumbwaiters, and related equipment,
except for related equipment installed below the base
flood elevation after September 30, 1987;
(7) Fuel tanks and the fuel in them;
                                                      82
(8) Furnaces and hot water heaters;
(9) Heat pumps;
(10) Nonflammable insulation in a basement;
(11) Pumps and tanks used in solar energy systems;
(12) Stairways and staircases attached to the building, not
separated
     from it by elevated walkways;
(13) Sump pumps;
(14) Water softeners and the chemicals in them, water filters, and
     faucets installed as an integral part of the plumbing system;
(15) Well water tanks and pumps;
(16) Required utility connections for any item in this list; and
(17) Footings, foundations, posts, pilings, piers, or other
foundation
     walls and anchorage systems required to support a building.
                                                              83
      Items Below The Lowest
           Elevated Floor
• Examples of what’s not covered:
   – Paint on drywall
   – Wallpaper
   – Carpet
   – Paneling
   – Ranges & ovens
   – Refrigerators                  >

                                    84
        Property Covered
Coverage B – Personal Property (18)




                                  85
B. COVERAGE B - PERSONAL PROPERTY (18)

1. If you have purchased personal property coverage, we insure
against direct physical loss by or from flood to personal property
inside a building at the described location, if:

a. The property is owned by you or your household family
members; and

b. At your option, the property is owned by guests or servants.
Personal property is also covered for a period of 45 days at another
location as set forth in III.C.2.b., Property Removed to Safety.


                                                              86
         Coverage B Items (18)
• a. Air conditioning units, portable or window type;
• b. Carpets, not permanently installed, over unfinished
  flooring;
• c. Carpets over finished flooring;
• d. Clothes washers and dryers;
• e. "Cook-out" grills;
• f. Food freezers, other than walk-in, and food in any
  freezer; and
• g. Portable microwave ovens and portable dishwashers. >

                                                        87
   Personal Property Below the
   Lowest Elevated Floor or in a
          Basement (18)
• Only the following:
  – Air conditioning units, portable or
    window type;
  – Clothes washers and dryers; and
  – Food freezers, other than walk-in,
    and food in any freezer.            >
                                        88
Personal Property Below the Lowest
 Elevated Floor or in a Basement
• None of the following is covered:
   – Carpet
   – Couch, chair, tables
   – TV, stereo, computer
   – Beds
   – Clothing
   – Any other personal property      >
                                      89
 Special Limits - $2,500 Total (19)
• a. Artwork, photographs, collectibles, or
  memorabilia, etc…
• b. Rare books or autographed items;
• c. Jewelry, watches, etc…
• d. Furs etc…
• e. Personal property used in any business.
• 7. We will pay only for the functional value
  of antiques.                               >
                                             90
        Debris Removal (19)
• a. We will pay the expense to remove non-
  owned debris on or in insured property and
  owned debris anywhere.
• b. If you or a member of your household
  perform the removal work, the value of your
  work will be based on the Federal minimum
  wage.

                                           91
 Loss Avoidance Measures (19)
• $1,000 maximum
• Sandbags, sand, pumps, plastic sheeting, etc
• Your own labor at minimum wage rate




                                             92
Property Removed to Safety (19)
• $1,000 to protect from further damage
• Your labor paid at minimum wage rate
• Property covered at that location for 45
  days, inside a fully enclosed building




                                             93
                ICC
 Increased Cost of Compliance (20)
• Complex issue
• Difficult for it to respond
• This is not “building code” coverage!!




                                           94
                   ICC
• $30,000 coverage limit (Text says $20,000)
• Additional insurance, but not above the
  $250,000 maximum
• Applies only when building coverage is
  purchased on the policy
• Does not apply to condo unit owner policies
                                            >

                                            95
                    ICC
• Property must be either:
   – Substantially damaged, (50% or more
     of its market value); or
   – A repetitive loss structure (2 or more
     flood losses in 10 years, each at 25% or
     more or market value)


                                                96
                      ICC
• ICC responds for:
   – Elevating
   – Floodproofing
   – Demolition
   – Relocation



                            97
    Property Not Covered (22)
• Personal property not inside a fully
  enclosed building
• Building located entirely over water
• Open structures – boathouses
• Recreational vehicles
• Self propelled vehicles (2 exceptions)

                                           98
    Property Not Covered (23)
• Underground structures – septic tanks!
• Walkways, decks, driveways…located
  outside the perimeter walls
• Fences, seawalls, piers, docks!
• Swimming pools



                                           99
             Exclusions (23)
•   Loss of revenue or profits
•   Loss of access
•   Loss of use
•   Business income losses
•   Additional living expense
•   Ordinance & law other than ICC

                                     100
             Deductibles (24)
• If under construction and no rigid walls and
  secured roof, deductibles are double
• Separate to building, separate to contents
• No deductible for:
   – Loss avoidance measures ($1,000 max)
   – Condo loss assessment
   – ICC                                  >

                                                 101
        General Conditions
        Other Insurance (25)
• NFIP is excess unless other policy is shown
  to be excess in which case NFIP is primary
• When writing excess flood it’s usually
  required to “max out” the NFIP policy




                                            102
           Assignment (25)
• Policy may be transferred to another party
  when title to property is transferred.
• Avoids the 30-day wait




                                               103
Reduction and Reformation (25)
• Rating errors:
• 30 days to pay additional premium
• If additional premium is not paid, coverage
  is “adjusted down”




                                            104
         Policy Renewal (26)
• A true “30-day grace period” to pay the
  premium.




                                            105
      Duplicate Policies (30)
• Not permitted
• Avoids the ability to go above the
  maximum NFIP coverage limits available




                                           106
       Loss Settlement (30)
• NFIP is ACV except:
  – Some dwellings
  – RCBAP




                              107
             Dwellings (30)
• ACV unless ALL the following apply
  – Single family
  – Owner occupied
  – Principle residence (80% of 365 days)
  – Insured to at least 80% of RC, or
    $250,000 on higher value dwellings
• Only the dwelling is RC; contents ACV >

                                            108
      RC Settlement Problem
• ACV paid, until the money is actually spent
  on replacement
   – FEMA has waived this in some disasters
• The Florida statute on “no holdback” does
  not apply to the NFIP



                                            109
       The 180-Day Rule (31)
• You may disregard the replacement cost
  conditions above and make claim under this
  policy for loss to dwellings on an actual
  cash value basis. You may then make claim
  for any additional liability according to
  V.2.a., b., and c. above, provided you notify
  us of your intent to do so within 180 days
  after the date of loss.
                                             110
       Other ACV Items (31/32)
•   2-3-4 family dwelling
•   Detached garages
•   Personal property
•   Appliances, carpets, carpet pads
•   Outdoor awnings and antenna
•   Non-primary residences
•   Mobile homes                       >
                                       111
  Determining the Replacement
   Cost of the Dwelling (32)
• Do not include:
   – Footings, foundations, piers
   – Underground pipes, flues, wiring,
     and drains
• But note, these items are covered by
  the policy                           >

                                      112
General Property Form
   (Not in Text) (4)




                        113
        Direct Physical Loss
• Direct damage required
• Not covered
  – Indirect damage (Business Income)
  – Property on a higher floor not damaged
  – Upper/lower cabinet example



                                             114
     General Property Form
       Other Coverages
• As a tenant, 10% of Coverage B for TIB
• As a condo unit owner, 10% of Coverage B
  for walls, floors, and ceilings. (Note: No
  ability to purchase building coverage)
• No business income or ALE
• ACV settlement…ALWAYS


                                           115
               RCBAP
• Remember…
  – F.S. 718.111(11) dealing with
    condominium insurance does NOT apply
    to NFIP




                                       116
  RCBAP – Building Coverage
• The residential condominium building
  described on the Declarations Page at the
  described location, including all units
  within the building and the improvements
  within the units.
• RCBAP covers a lot more than the
  commercial property form does

                                          117
   RCBAP – Building Coverage
• In the units within the building, installed:
   –   (1) Built-in dishwashers;
   –   (2) Built-in microwave ovens;
   –   (3) Garbage disposal units;
   –   (4) Hot water heaters, including solar water heaters;
   –   (5) Kitchen cabinets;
   –   (6) Plumbing fixtures;
   –   (7) Radiators;
   –   (8) Ranges;
   –   (9) Refrigerators; and
   –   (10) Stoves.                                            118
  RCBAP – Contents Coverage
• Contents owned in common by unit owners
• Owned solely by the condo association
• Covered at the insured location, inside a
  fully enclosed building…45 days elsewhere




                                          119
              RCBAP
        Property Not Covered
• Open structures      • Docks
• Vehicles             • Ordinance/law
  (exception)          • Fences
• Land, trees, etc     • Retaining walls,
                         seawalls
• Decks outside
  perimeter walls of
  building

                                            120
              RCBAP
          General Provisions
• Coinsurance
   – 80% or maxed out
• Only improvements installed by the
  association factor into the replacement cost
  estimates
• Include foundation in calculations


                                             121
             RCBAP
         General Provisions
• Replacement cost coverage on building:
  – We will not be liable for any loss on a
    Replacement Cost Coverage basis unless
    and until actual repair or replacement of
    the damaged building or parts thereof is
    completed.


                                           122
             RCBAP
         General Provisions
• ACV settlement on:
  – Personal property
  – Antenna
  – Awnings
  – Carpet & pad
  – Appliances

                              123
              RCBAP
             Deductibles
• Standard deductible
   – $500/$500
• Maximum deductibles permitted
   – $25,000/$25,000




                                  124
    Deductibles – Freddie Mac
• 1-4 unit properties
   – 5% max (except flood)
• PUDs/Condos
   – 5% max (except flood)
• Condo flood
   – Deductible may not exceed maximum amount
     allowed under NFIP
   – 100% to value required
                                                125
General Rules & Underwriting




                               126
         Limits Available (5)
• Residential
  – $250,000/$100,000
• Non-residential
  – $500,000/$500,000
• RCBAP
  – $250,00 x number of units, or
    replacement cost whichever is less
                                         127
       Deductible Options (5)
• Residential; 1-4 family
  – $5,000/$5,000 (.740 & .750 factor)
• Other residential/non-residential
  – $50,000/$50,000 (.50 & .45 factor)
• RCBAP
  – $25,000/$25,000 (.725 & .715 factor)

                                           128
       Insurance to Value (5)
• Coinsurance only in RCBAP
• Residential where RC applies
   – Must insure to at least 80%, otherwise
     ACV is paid
• Include foundations in calculations for
  RCBAP. Not required to do so in dwelling
  policy

                                              129
         Loss Settlement (5)
• ACV at all times except:
  – Some single family residences
  – RCBAP, if insured to value (80%)




                                       130
    Reduction/Reformation (5)
• Discovered before a loss:
  – Bill sent; if paid within 30 days then the
    originally requested amount is provided.
    If not paid, policy reformed.
• Discovered after a loss:
  – Same as above. Premium now collected
    prospectively, not retrospectively.
    (FEMA Policy Issuance #1-2005)
                                             131
              Binders (6)
• Binder--A temporary agreement between
  company, producer, and insured that the
  policy is in effect. Binders are not
  permitted under the NFIP




                                            132
 Binders/Evidence of Insurance
• Copy of the Flood Insurance Application
  and premium payment, or…
• Copy of the declarations page
• The NFIP does not recognize an oral
  binder or contract of insurance.        >



                                         133
          Waiting Period (6)
• 30-days with exceptions
• Wait is waived for the person/entity getting
  loan
   – Condo unit owner vs. association




                                             134
          Waiting Period (6)
• 30-day waiting period for new applications
  and coverage increases. (Exceptions)
• Application must be received within 10
  days or mailed by certified mail (FEDEX
  UPS, also) within 4 days of date of
  application
   – If not received, the 30-days starts when
     received by NFIP/WYO                     >

                                             135
           Waiting period
       30-Day Wait Exceptions
• New policy in connection with making,
  increasing, extending, or renewing a loan, whether
  conventional or otherwise.
• Lender determines a SFHA building should be
  covered by a flood policy.
• Flood map revised/building in SFHA
• RCBAP if association is required to obtain flood
  coverage as part of a loan in the name of the
  association.

                                                  136
          Waiting Period
      30-Day Wait Exceptions
• Standard flood policy to PRP rewrite.
  – SFP must cover building and
    contents for no wait to apply under
    PRP.
• PRP to SFP rewrite.



                                          137
         Waiting Period
     Required Documentation
• Agent’s representation is “as good as gold”
  unless….
• …claim in first 30 days. Agent must supply
  proof of no wait




                                            138
          Waiting Period
   General Change Endorsements
• Can increase coverage, subject to 30-day
  wait.
• Can’t reduce or remove coverage except
  under certain circumstances
• Rating errors can be corrected back six
  years
• Deductibles can be increased, but can not be
  decreased                                  >
                                            139
            Waiting Period
            Endorsements
• 30-day wait for increased coverage applies
  except:
  – Map revisions
  – In connection with a loan



                                               140
         Waiting Period
     Other 30-Day Exceptions
• Renewal when the higher limit is selected
• PRP renewal at next higher level
• Reduction of deductible at renewal




                                              141
             Policy Term (6)
• One-year




                               142
           Cancellation (6)
• A flood policy may be cancelled at any
  time:
  – Question is: “Do I get a refund?”
• Refunds due in 23 situations




                                           143
Most Common Reasons Where A
       Refund is Due
• Building sold or     • Bad check to agent
  removed              • No Closing
• Contents sold or     • No longer required by
  removed                mortgagee
• Common expiration    • Mortgage paid off
  date                 • Fraud
• Duplicate policies


                                             144
           Elevation Certificate
           When Required (6)
• 1/1/07 – New certificate must be used
• Required for post-FIRM buildings in SFHA
• Not required for pre-FIRM buildings, but
  savings possible
• Elevation Certificates must be prepared and certified by a
  land surveyor, engineer, or architect who is authorized by
  commonwealth, state, or local law to certify elevation
  information. Community officials who are authorized by
  local law or ordinance to provide floodplain management
  information may also sign the certificate.
                                                           145
     Map Grandfather Rule (6)
• Choice of:
   – Current map, or
   – Map in effect at construction date
• The building must have had continuous
  coverage, even in change of owners, if pre-
  FIRM. Post-FIRM must show building was
  built in compliance
• Grandfathering does not apply to PRP
                                           146
Coastal Barrier Resource Act (6)
• Previously addressed




                               147
    Course of Construction (6)
• Previously addressed




                                 148
Single Building (6)




                      149
            Single Buildings
• To qualify as a single building, a building
  must:
  – Be separated by clear space, or…
  – Be separated by solid, load-bearing,
    division walls


                                                150
            Single Building
• Advantages
  – Write as one policy – one deductible
  – Lower premium than separate policies
• Disadvantages
  – Subject to maximum limits
  – Higher limits available with multiple
    policies                                >

                                            151
  Additions and Extensions (7)
• From the manual….




                                 152
The NFIP insures additions and extensions
attached to and in contact with the dwelling by
means of a rigid exterior wall, a solid load-
bearing interior wall, a stairway, an elevated
walkway, or a roof.

At the insured’s option, additions and
extensions connected by any of these methods
may be separately insured.

                                          153
 Eligible/Ineligible Buildings (7)
• Previously addressed




                                 154
Increased Cost of Compliance (7)
• Previously addressed




                              155
   Buildings in More Than One
             Zone (7)
• Buildings, not the land, located in more
  than one flood zone must be rated using
  the more hazardous zone.
• This condition applies even though the
  portion of the building located in the more
  hazardous zone may not be covered under
  the SFIP, such as a deck.

                                            156
                Maps (7)
• Previously addressed
   – http://msc.fema.gov




                           157
                LOMA (7)
•   Used to show property not in SFHA
•   May apply on line
•   Fees: No charge for single-lot LOMA
•   On line tutorial/application
     – http://www.fema.gov/media/fhm/loma/ot
       _lmafl.htm

                                           158
Helping the Client
 File a Claim (8)




                     159
160
     Claim Appeal Process (8)
• 1. Talk to adjuster
• 2. Contact adjuster’s supervisor
• 3. Contact the insurance company’s claim
  representative
• 4. Contact FEMA in writing. (Address on
  web page)


                                             161
Claims Handbook (8)




                      162
   Notification Requirements to the Policyholder
     Flood Insurance Reform Act of 2004 (8)

• New requirements on agents. Why? From
  FEMA…
• The reason that much of this language has come
  about is the perception among legislators that
  agents do not know that flood is excluded from
  property policies, do not know that there is a
  specialty program for flood, do not advise their
  clients of the flood risk and availability of flood
  insurance, and do not appreciate the limited
  nature of the flood insurance policy.
                                                   163
   Notification Requirements to the Policyholder
       Flood Insurance Reform Act of 2004

• Point of Sale Responsibilities (Agent)
   – Policy exclusions that apply
   – Explanation regarding how losses will be
     adjusted (ACV vs RCV)
• FEMA
   – Notification of coverages being purchased
   – Number and dollar amount of claims for
     property address
   – Acknowledgement forms
                                                   164
      Summary of Coverage
      Exclusions That Apply
• http://www.fema.gov/library/viewRecord.d
  o?id=1904




                                         165
NFIP Letters & Publications Sent
      to the Policyholder




                               166
FEMA Letter to Policyholder




                              167
168
Claims Handbook
 Sent by FEMA




                  169
170
Acknowledgment of Receipt
 Sent by FEMA (2 Copies)




                            171
172
Prior Loss History
 (Sent by FEMA)




                     173
174
  Proposed Changes to NFIP (9)

•PROPOSED changes
   – Not final
• Passed by U.S. House
   – HR 4973 Flood Insurance Reform and
     Modernization Act of 2006 (FIRM)
• U.S. status: Senate
   – “Dead in the water” (S. 3589)
                                          175
    Proposed Changes to NFIP
• Study feasibility of mandatory purchase by
  all risks in SFHA
• Study feasibility of mandatory purchase
  when non-federal lender involved
• Phase in “actuarially sound” rates for non-
  residential, pre-FIRM, and non-primary
  residential                                 >

                                             176
    Proposed Changes to NFIP
• Reduce 30-day wait to 15-days
• No wait for purchases without a loan
• Residential
  – Increase building $250K max to $335K
  – Increase contents $100K max to $135K
• Non-residential
  – Increase $500,000K max to $670K
                                           177
    Proposed Changes to NFIP
• Include $1,000 of ALE
   – Make increased ALE available for
     purchase
• Basement coverage available for purchase
• Business income coverage available for
  purchase
• Replacement cost on contents available for
  purchase on all policies                  >
                                           178
    Proposed Changes to NFIP
• Increase annual cap on premium increases
  from 10% to 15%
• Increased borrowing authority to $25B




                                             179
       Elevation Certificate (9)
• Training available:
• http://training.nfipstat.com/portal2/default.asp




                                                     180
         Elevation Certificate
• Key points:
  – The surveyor is being paid to do this form
    correctly
  – Force him/her to do it right
  – If it’s not done correctly, the agent is put
    in a spot where he/she does not want to
    be…in an E&O landmine field

                                              181
          Elevation Certificate
• New EC approved for use 2/13/06 through 2/28/09
• Mandatory to use new EC 1/1/07
• Certifier must provide area of enclosure below
  elevated floor
• Certifier must provide two photographs, digital or
  3” x 3” minimum
• Four pages in length, instructions are 16 pages! >


                                                  182
        Elevation Certificate
• Refer to appendix, page 34




                                183
184
185
186
187
188
       Elevation Certificate’s
        Role in Policy Rating

• Required for post-FIRM risks in SFHA
• Optional for pre-FIRM risks in SFHA
• Not required for B, C, or X zones




                                         189
                Enclosure

• That portion of an elevated building
  below the lowest elevated floor that is
  either partially or fully shut in by rigid
  walls.




                                               190
              Venting

• Permanent opening in a wall that allows
  the free passage of water in both
  directions, automatically, without human
  intervention.
• A window, a door, or a garage door is not
  considered an opening.




                                        191
           Vents = A Zones

• Minimum of 2 vents or openings
• 1 square inch for every square foot of
  enclosure/crawl space
• Must be within 1 foot of grade




                                           192
    V Zones = Breakaway Walls
• Not part of the structural support of the
  building
• Designed to collapse under specific lateral
  loading forces without causing damage to
  the elevated portion of the building or
  foundation system


                                          193
                   V Zones

• Must be free of obstruction
• If enclosure greater than 300 square feet,
  different rates apply




                                               194
             Lowest Floor
Section C3.a is lowest floor for (Diagrams 1-5)
A zones, if M/E above BFE.

Section C3.b is lowest floor for (Diagrams 6-
8) A zones, if enclosure/crawl space has proper
openings.




                                            195
Miscellaneous Issues




                       196
Non-NFIP Primary Coverage




                            197
    Non-NFIP Primary Coverage
•   RC loss settlement
•   Broader basement coverage
•   Increased special limits ($5,000 vs. $2,500)
•   $50,000 flood loss assessment coverage
•   ALE/FRV coverage – no deductible
•   Civil authority ALE – 30 days
•   $5,000 for loss avoidance measures……
                                               198
    Non-NFIP Primary Coverage
• O&L and ICC coverage
• Non-assignable policy
• Higher deductibles for vacant homes
• Subject to state regulation & statutes
• Eligibility contingent upon carrier writing
  the homeowners policy. HO cancels, so
  does flood…on same day!
• Fully earned premium if a claim occurs >
                                           199
Excess Flood Products




                        200
              Excess Flood
             “Cool Features”
•   $15 million limit
•   Broader definition of “flood”
•   Replacement cost loss settlement
•   Broader basement coverage
•   Increased coverage for high value items
•   ALE & FRV
•   Ordinance & law
                                              201
              Excess Flood
                Cautions
• Underlying coverage must be in place
• Typically max NFIP limits are required
• Failure to maintain underlying results in gap
  in coverage
• Non-standard policy wording



                                             202
      CBRA Zones & Lenders
• Thoughts/Problems???
• NFIP provides no coverage
• Lender must still make certain flood
  coverage is in force
• Lender may:
   – Accept non-NFIP product
   – Decline the loan                    >
                                         203
             Zone Disputes
• Policyholder can dispute lender or 3rd party
  determination that risk is in SFHA
   – LODR: Letter of Determination Review
   – $80 fee, paid by policyholder
   – Allow 8 weeks
• FEMA makes the final determination of
  zone
                                             204
         Rating Errors
  Refund Processing Procedures
• WYO carrier – responsible for current and
  prior policy term
• NFIP Bureau refunds 3+ years, after
  documentation submitted




                                              205
          Where to List the
        Lender as Loss Payee
• Thoughts???
• Options:
  – List on RCBAP (No real interest, but it
    squelches the lender)
  – List on unit owner policy
  – List nowhere. (You drive the insurance
    bus)                                    >
                                           206
          Construction Loans
• To avoid 30-day wait, coverage must be
  effective at closing.
• Vacant land is eligible if owner intends to
  build on that land.




                                                207
FloodSmart Web Page




                      208
FloodSmart Agent Site
(Free Registration Required)




                               209
IIABA Virtual University
  (Free Registration Required)




                                 210
IRMI




       211
Trivia Time




              212
          Trivia Question #1
• Spot the error on this FloodSmart web page:




                                           213
214
                Trivia #2
• How much is the federal policy fee on the
  dwelling flood policy?
   – $30.00




                                              215
                Trivia #3
• Of participating communities in the Regular
  Program, what percent of single family
  dwellings are located in a flood zone?
   – 100%




                                           216
                Trivia #4
• What is the PRP policy fee?
  – $11.00




                                217
                Trivia #5
• Is sewer backup covered under NFIP? If so
  when? If not, why not?
   – Damage caused by sewer or drain
     backup, or overflows from a sump pump
     or related equipment are covered if the
     event is a direct result of flooding.


                                           218
                Trivia #6
• Loss avoidance measures are paid to the
  policyholder under the NFIP policy at the
  federal minimum wage rate. What is the
  rate per hour paid?
   – $5.15 per hour



                                              219
                 Trivia #7
• A home located in a SFHA has a 26%
  chance of being damaged by flood over the
  life of a 30-year loan. What is the chance of
  the same house being damaged by fire
  during that same 30-year time period?
      • 4%


                                             220
                  Trivia #8
• You’ve owned your house six years. It has
  suffered covered flood damage four times. Which
  is true:
   – A. You’re policy may be non-renewed.
   – B. Your policy will renew, at a higher rate
   – C. Your policy will renew at the same
      premium ?????
       • Correct answer: “C”

                                               221
               Trivia #9
• Who is the Director of FEMA’s Mitigation
  Division….the “main man for flood
  insurance?”
   – David Maurstad




                                         222
                Trivia #10
• What’s the best restaurant on the planet?




                                              223
       Thanks For Being Here Today

          David Thompson
Florida Association of Insurance Agents
         Dthompson@faia.com
                                     224

				
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