Flood Insurance

Here we go again. Every few years, it seems there’s a potential lapse in the National Flood Insurance Program (NFIP). While very scary sounding and not without the possibility of serious consequences, it’s likely a resolution will be reached prior to the midnight, September 30 deadline, and even if it’s not, a lapse would likely be hours or days, not weeks or months. However, if there is a lapse, there are things lenders and insurance agents who write NFIP policies need to know.

Pre-FIRM flood insurance means you can receive discounted flood insurance premiums from the federal government because your house was built before FEMA created a flood map for your property.

For most properties, pre-FIRM flood insurance discounts are available if your property was built before 12/1/1974. The actual date varies a little bit because all the flood maps were not created at the same time, so you’ll have to check with a professional (like MassiveCert) to know the exact date. If your property was built before a builder could have known about the flood risk, then you get a special discount on your flood insurance premiums.

So, you had a concern when you purchased your home that you might be required to get flood insurance because there are high risk flood zones nearby. Luckily, your lender said you are not mapped into one of those Special Flood Hazard Areas (SFHA or the “100-year flood”), so, of course you didn’t get flood insurance because it wasn’t required – right?

Well, you might want to reconsider that decision because Mother Nature doesn’t care about compliance with home purchasing requirements in the USA. You may not be safe from flood risk even if you are “compliant”, but there is a way to find out what your flood risk is.

Your flood zone changed because FEMA updated your flood map due to natural and man-made events that occur over time. FEMA flood map updates are published 26 times a year and could cause you to pay higher or lower insurance premiums, pay insurance for the first time, or remove the insurance requirement from your property. You cannot stop a flood, but you can rebuild your life afterward when you are insured by the federal government or a private market policy that your loan servicer must accept.

MassiveCert's 142 million FEMA flood zones were used by First Street Foundation to compare the organizations' flood risk perspective. Both models are beneficial and help move the flood risk conversation forward. But, the models are created for different purposes because the concept of a single definitive floodplain is a fallacy.

This article is written to aid property owners regarding their flood risk. Floodplain Managers, flood insurance professionals, surveyors, etc. may note that this information is high-level and not every variable is covered. Even so, it is hoped this information helps those not directly involved in the industry understand the basic terms and how they relate to flood risk and flood insurance rates.

Of course, the best way to keep a home from flooding is to build it well outside of a Special Flood Hazard Area (SFHA). But we know, about 25% of flood claims come from properties not in these high-risk zones. Further, the risk of flooding is obviously vastly different between properties considered to be in low-risk areas when one is a few inches above the Base Flood Elevation (BFE) and the other is many feet above that imaginary line (the elevation at which a hydrology study predicts 1% chance of flooding in any given year). What’s more, many individuals have to consider properties in SFHAs. Cities like New Orleans, Houston, and Charleston to name a few, don’t give home buyers and businesses many choices other than high risk areas.

When the Biggert Waters Act of 2012 (BW12) was passed, one of Congress’ goals was to allow for lender acceptance of private flood insurance policies to satisfy the mandatory purchase requirement. The Act contained vague language, and it took lending regulators seven years to finalize a rule for lenders to follow. Prior to the lending regulators creating the final rule, many lenders didn’t accept private flood policies as they were uncomfortable verifying compliance with the BW12 definition and worried about noncompliance fines and collateral protection.

If you are like me, when the newly formatted NFIP Flood Insurance Manual came out on October 1^st, you probably thought, “Well great! Now I have to start all over again learning this manual.”  I’ve been using the NFIP Flood Insurance Manual for over 16 years and have learned through long experience where to find certain flood insurance topics. I certainly didn’t relish having to re-learn where to find information. Despite the new format being more logical and following a transaction-by-transaction path through the lifecycle of a flood insurance policy, my first impulse was to cringe and curse.

The Federal Emergency Management Agency’s (FEMA) “Clear Communication Initiative” is intended to inform federal flood insurance policyholders of their flood risk as reflected on the most current Flood Insurance Rate Map (FIRM).  This is something congress mandated in the Homeowner Flood Insurance Affordability Act (HFIAA, and specifically Section 28 of that Act).  The reasoning is sound, but there are parts that may be confusing, so I want to try and explain “Clear Communications”.