How Flood Insurance Works: NFIP
Modern Flood insurance began with the founding of the National Flood Insurance Program (NFIP) in 1968. The NFIP embodied Congress’ reaction to rising financial and human costs of flood disasters - costs that continued to rise despite an increase in federal projects like levees and dams in flood-prone areas. The NFIP took a different approach by focusing on cooperation between local communities, the government, and the insurance industry.
Now part of the Federal Emergency Management Agency (FEMA), the National Flood Insurance Program has three aspects: Floodplain Identification and Mapping, Floodplain Management, and Flood Insurance. Based on the floodplain mapping, NFIP identifies areas that are prone to flooding, naming particularly risky areas “Special Flood Hazard Areas” or SFHAs. The local communities in these areas can then cooperate with NFIP’s floodplain management guidelines in order to gain government guarantees for flood insurance to property owners.
Without NFIP, flood insurance on these properties would usually be impossible or unaffordable to property owners. The NFIP grants insurance to a participating community’s property owners in SFHAs, with policies up to $250,000 per unit either directly from the government or from an insurance company (with identical terms) through the "Write Your Own Program." Additional legislation also requires many lenders and federal agencies to require the purchase of Federally backed flood insurance owners seeking loans and mortgages in SFHAs.
What People Are Saying About Us
Thank you Flood Insurance Agency for helping me over the last four months to resolve my flood insurance billing issue with Bank of America. You are very, very customer oriented. That was a lot of effort for no extra premium for you.
Received a letter from BOA today dated 8-18-10. The letter was notification that BOA had "cancelled the flood insurance that we had ordered. Coverage was cancelled with no charge to you."
Thank you so much for your tenacity in helping resolve this problem and saving me over $300 in flood insurance escrow premiums.
Charlie and Petey, as per above, Ranew did a great job as our insurance agent, and highly recommend that we continue to have them as our agent.
Thanks,
J.R. Carroll
Sand Pebbles Condo
Dear Mr. Ranew,
My wife and I live in the Island Pointe Condos and I wanted to pass on to you how appreciative I am of the quality service we are receiving from your office. As you know, we must annually validate flood insurance coverage with our mortgage holder and your office's system for making this painless (at least at your end) is very helpful.
I am now in the middle of a difficulty with Bank of America who did not post the documentation you sent and also the documentation that Rory provided to me and which I also sent to BofA. The only comfort I am finding is that your office is so well organized that I have all the documentation I need to prove that I upheld my end of the transaction.
I want to particularly commend Rory who was incredibly responsive both when I requested a personal copy of the policies so I could send them myself and who has just now located and sent me the proof of your original submission. He is very pleasant, amazingly competent, and represents your company very, very well.
I have had occasion to remark on the convenience of your service to the condo board president before and will make a point of doing so again.
Sincerely yours,
Larry West
Flood Insurance Terms
Here are some helpful terms in flood insurance, with definitions from the National Flood Insurance Program:
Actual Cash Value (ACV)
The cost to replace an insured item of property at the time of loss, less the value of physical depreciation.
Community Rating System (CRS)
A program developed by the FEMA Mitigation Division to provide incentives for those communities in the National Flood Insurance Program that have gone beyond the minimum floodplain management requirements to develop extra measures to provide protection from flooding.
Federal Emergency Management Agency (FEMA)
The federal agency within the Department of Homeland Security that is tasked with responding to, planning for, recovering from, and mitigating against man-made and natural disasters.
Federal Policy Fee
A flat charge that the policyholder must pay on each new or renewal policy to defray certain administrative expenses incurred in carrying out the National Flood Insurance Program.
Flood
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 the policyholder's property) from one of the following:
- Overflow of inland or tidal waters
- Unusual and rapid accumulation or runoff of surface waters from any source
- Mudflow
Collapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined above
Flood Zone (Zone)
A geographical area shown on a Flood Hazard Boundary Map or a Flood Insurance Rate Map that reflects the severity or type of flooding in the area.
Floodplain
Any land area susceptible to being inundated by floodwaters from any source.
Floodplain Management
The operation of an overall program of corrective and preventive measures for reducing flood damage, including but not limited to, emergency preparedness plans, flood control works, and floodplain management regulations.
Mandatory Purchase
Under the provisions of the Flood Disaster Protection Act of 1973, individuals, businesses, and others buying, building, or improving property located in identified areas of special flood hazards within participating communities are required to purchase flood insurance as a prerequisite for receiving any type of direct or indirect federal financial assistance (e.g., any loan, grant, guaranty, insurance, payment, subsidy, or disaster assistance) when the building or personal property is the subject of or security for such assistance.
National Flood Insurance Program (NFIP)
A federal program enabling property owners in participating communities to purchase insurance protection against losses from flooding. This insurance is designed to provide an insurance alternative to disaster assistance to meet the escalating costs of repairing damage to buildings and their contents caused by floods.
National Flood Insurance Reform Act (NFIRA)
The purpose of the National Flood Insurance Reform Act of 1994 is to improve the financial condition of the NFIP and reduce federal expenditures for disaster assistance to flood-damaged properties. The act affects every part of NFIP, insurance, mapping and floodplain management. NFIRA also gives lenders tools with which to enforce requirements for flood insurance coverage mandated under the Flood Disaster Protection Act of 1973.
Non-Residential
Includes, but is not limited to: small business concerns, churches, schools, farm buildings (including grain bins and silos), pool houses, clubhouses, recreational buildings, mercantile structures, agricultural and industrial structures, warehouses, hotels and motels with normal room rentals for less than 6 months' duration, and nursing homes.
Non-Special Flood Hazard Area (NSFHA)
An area in a low to moderate risk flood zone (Zones B, C, X) that is not in any immediate danger from flooding caused by overflowing rivers or hard rains. However, its important to note that structures within a NSFHA are still at risk.
Other Residential
Hotels and motels where the normal occupancy of a guest is 6 months or more; a tourist home or rooming house which has more than four roomers. A residential building (excluding hotels and motels with normal room rentals for less than 6 months' duration) containing more than four dwelling units. Incidental occupancies such as office, professional private school, or studio occupancy, are permitted if the total area of such incidental occupancies is limited to less than 25 percent of the total floor area within the building.
Participating Community
A community for which the Mitigation Division Administrator has authorized the sale of flood insurance under the NFIP.
Policy
The entire written contract between the insured and the insurer. It includes: the printed policy form, the application and Declarations Page, any endorsement(s) that may be issued, and any renewal certificate indicating that coverage has been instituted for a new policy and new policy term.
Replacement Cost Value (RCV)
The cost to replace property with the same kind of material and construction without deduction for depreciation.
Residential Condominium Building Association Policy (RCBAP)
Policy issued to insure a residential condominium building and all units within the building, provided that the building is located in a Regular Program Community and at least 75 percent of the total floor area is residential.
Special Flood Hazard Area (SFHA)
A FEMA-identified high-risk flood area where flood insurance is mandatory for properties. An area having special flood, mudflow, or flood-related erosion hazards, and shown on a Flood Hazard Boundary Map or a Flood Insurance Rate Map as Zone A, AO, A1-A30, AE, A99, AH, AR, AR/A, AR/AE, AR/AH, AR/AO, AR/A1-A30, V1-V30, VE, or V.
Standard Flood Insurance Policy (SFIP)
Policy issued to insure a building and/or its contents.
Waiting Period
The time between the date of application and the policy effective date.
Write Your Own (WYO) Program
A cooperative undertaking of the insurance industry and FEMA begun in October 1983. The WYO Program operates within the context of the NFIP and involves private insurance carriers who issue and service NFIP policies.
Zone
A geographical area shown on a Flood Hazard Boundary Map or a Flood Insurance Rate Map that reflects the severity or type of flooding in the area.
