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Flood Insurance Issues in Recovery


People deciding to invest in restoring storm-damaged property should be aware of regulatory and insurance provisions associated with the National Flood Insurance Program. These may restrict construction and impact the future cost of owning the property. Drastic increases in flood insurance premium were set in motion by legislation in July 2012, some of which was reversed by legislation in March 2014.

Most development regulation associated with the NFIP impacts buildings that are too low in the flood zone. It is more important than ever for people to learn about flood risk at their property, make informed decisions about how much to invest in a property that is too low, and about how to avoid becoming one of those too-low properties. (See Definitions and Technical Resources, below, for explanation of terms.) Development regulations apply even if the property is not covered by flood insurance.

Be aware that receiving federal assistance for restoring or elevating a flood-damaged building or a building that is in the flood zone usually obligates the recipient to purchase flood insurance for the building being restored.

Refer to these EDEN pages for more information on the National Flood Insurance Programs and the 2012 and 2014 legislative changes to that program.

Four recommendations can help people who are rebuilding or repairing damaged buildings and recovering  businesses:

  1. Before you invest in restoring your building, find out whether you are (or will soon be) too low in the flood zone, and how your flood insurance premiums will be going up faster than others as a consequence of the flood insurance reform legislation.
  2. Look for updated flood risk information and build to avoid that risk -- even if you are not required to do so. There may be new flood maps on the drawing board for your area. Your area may be in line for a new flood study. Don't try to beat the system by getting a quick permit to build to old standards.
  3. Recognize that maps DO get revised periodically and the flood levels typically go up - not down. If you build to the current standard, you could well be too low in the flood zone when new maps come out. Consider adding a measure of safety (feet above the minimum requirements) when deciding how high is high enough for YOU. 
  4. When deciding whether to recover a business, evaluate the impact of rising flood insurance rates on your bottom line. The NFIP Reforms raise the limit on annual increases from 10% per year to 18-20% per year - across the board. Property that is not the insured's primary residence and business property that is rated based on being Pre-FIRM started seeing 20-25% premium increases in 2014. Buildings rated based on having been built in compliance with a previous flood map (called "grandfathering") were scheduled to loose those premium discounts in 2015, but the 2014 legislation fully restored "Grandfathering". In each case of premium rising from a Pre-FIRM rate, the increases will take the premiums to actuarial rates, based on the current risk. 

Permits Required - Opportunity to Avoid Costly Mistakes 

Having to get a permit to rebuild can put people in touch with those involved in managing flood risk in the community.

Even in communities that do not enforce a building code, ALL building, rebuilding and restoration work in the flood zone requires a permit from the local office that ensures that new and substantially improved construction is protected from future floods. When the building is too low in the flood zone and the estimated damage is substantial, the permit will be delayed. Substantial damage means the cost to restore the building to its pre-damaged condition is 50% or more of the fair market value of the building before this damage occurred. If substantial damage is confirmed, the permit must be denied. A substantially damaged building must be elevated to flood protection levels before it can be repaired, or rebuilt at the higher elevation. Requiring permits and enforcing the substantial damage rule are the responsibility of the local government; failure to enforce these regulations jeopardizes the availability of flood insurance in your community.

FEMA/NFIP Student Manual on Substantial Damage and Substantial Improvement 
FEMA Substantial Improvement/Substantial Damage Desk Reference (2010)

Since its inception, the NFIP has been able rate structures for flood insurance based on the map that was in effect when the building was permitted or constructed. That practice, known as "Grandfathering," was stricken in the 2012 NFIP Reform Act (also known as Biggert-Waters), but fully restored in the March 2014 Insurance Affordability Act. The 2014 Act became law before the no-grandfathering provision of the 2012 legislation had been implemented.

The "grandfathering" of rates (basing them on prior maps) tends to conceal the fact that newer FIRMs show a property to be at higher flood risk. FEMA, however, for many years, used grandfathering as a sales pitch for insurance promotions: "Buy insurance now before the new maps are adopted." The fear of losing Grandfathering changed the message to "Raise your building, lower your premium." In the post-flood environment, when revised FIRMs are likely to show higher flood risk, people too often rush to rebuild using the current FIRM. While this may save on flood insurance, it represents building at greater risk.

These resources can help you find your local floodplain official and particulars about the communities that participate in the National flood Insurance Program (NFIP)

  • NFIP Community Status Book - Use this to find out which communities in your state participate in the NFIP, when they entered, and the dates of their first and current Effective FIRM. Data are presented in Adobe PDF, comma separated values (CSV) text file, and HTML formats.
  • State NFIP Coordinators - maintained by the Association of State Floodplain Managers. State coordinators will know their local floodplain administrators.


Definitions and Technical Resources 

Actuarial rates for flood insurance - As used here the word "actuarial" refers to the rate that would be charged a similar property that does not have a discount (break, subsidy). The word itself may have specified, broader meaning within the insurance industry. The changes imposed in 2012 by Congress appear to be intended to move the NFIP itself toward being more actuarially sound.

Base Flood Elevation (BFE) - The base flood is the 1%-annual-chance flood, commonly called the "hundred year flood." Base Flood Elevation is the water-surface elevation of the base flood. The depth of the base flood can be calculated by subtracting the ground elevation from the BFE. The probability is 1% that rising water will reach BFE height in any year; which compounds over a thirty-year period to 26% or more.

In the flood zone - This term is used by most people to mean the property is in the Special Flood Hazard Area (SFHA), as depicted on the Flood Insurance Rate Map (FIRM). The NFIP flood zones are A and V zones and sometimes have letters or numbers following the A or V (e.g. AE, AH, AO, VE). The officially adopted FIRM is the basis for all flood insurance rating. The community may be using a more restrictive map with broader flood zones and higher flood standards for regulating floodplain development. The community's regulatory map also may include allowances for increased runoff, subsidence, failure of dams and levees, or sea level rise, which are not reflected on the FIRM.

Too low- From an insurance-rating standpoint, "too low" means the elevation of the building is lower than the BFE. Building elevation in the A-zones is measured at the top of the lowest floor. Elevation in the V-zones is measured at the bottom of the lowest horizontal structural member of the foundation. Enclosures that are lower than the living space may be considered the "lowest floor" in some circumstances; machinery and equipment located below the living space may raise insurance rates. The following resources may be helpful:
NFIP Elevation Certificate with lowest floor diagrams
FEMA Technical Bulletin 1-08: Openings in Foundation Walls and Walls of Enclosures

From a practical standpoint, "too low" means the risk of flooding is higher, a fact that has been concealed till now by artificially low (subsidized) insurance rating. The lower you are relative to BFE, the higher your risk of flooding. Being “too low” in the flood zone can cause hardship for the owner if the building is substantially damaged by fire, flood, tornado, earthquake or other event and must be raised before it can be repaired. The cost of raising the building usually is not covered by home owners insurance, but may be offset to some extent by the Increased Cost of Compliance coverage of the NFIP policy.

NFIP Community Status Book - Use this to find out which communities in your state participate in the NFIP, when they entered, and the dates of their first and current Effective FIRM. Data are presented in Adobe PDF, comma separated values (CSV) text file, and HTML formats. 

Pre-FIRM - Structure that was built before the community received its first Flood Insurance Rate Map (FIRM).

State NFIP Coordinators - maintained by the Association of State Floodplain Managers. State coordinators will know their local floodplain administrators.

NFIP Insurance Manuals - These manuals include insurance rating tables. the manuals have been changing every 6-months to gradually implement the provisions of the 2012 and 2014 legistation.


Last Updated:6/8/2016 1:01 PM

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