Reducing the Cost of NFIP Coverage

Many factors go into the rating of a flood insurance policy, although three components are primary: the age of the building, the method of its construction, and the flood zone in which it is located. With a bit of research, insurance agents can lower the premiums for some clients while still protecting the property against flood losses.

Grandfathering

FEMA revises and republishes Flood Insurance Rate Maps (FIRMs) for a variety of reasons, including when a community:

• Makes structural improvements (dams, levees, etc.) to reduce the potential effects of flooding;
• Experiences new development that increases the risk of flooding and thereby expands the floodplain;
• Revises geographical boundaries in a way that results in the designation of additional flood hazard areas; or
• Provides FEMA with information to better delineate the Base Flood Elevation (BFE) in flood risk zones in the area.

To recognize and assist policyholders who have remained loyal customers of the NFIP by maintaining continuous coverage or who built in compliance with the FIRM in effect at time of construction, the NFIP has "Grandfather Rules." Grandfathering allows these policyholders to benefit in the rating for their buildings and, in many cases, maintain the lower premium they had before the FIRM was revised.

Always check to see if the property owner may qualify for the Grandfather Rule, allowing the insured to use the old flood zone premium rate.

Is the Home Elevated?

Another strategy for reducing a client’s premium is to determine whether the property is at or above the BFE.

The BFE is the expected depth of surface water during a major flood event known as the Base Flood. Buildings with their lowest floor at or above the BFE experience little or no damage during a major flood event. BFEs are shown on the community’s FIRM. Making sure that the BFE and identified flood hazard areas are accurate is the main purpose for updating FEMA maps. Meeting the BFE could result in a lower insurance premium, even if the home was built pre-FIRM.

How does your client determine if the lowest floor of his or her home is at or above the BFE?

Ask your client to check with a local community official (start with someone in the building permit or planning and zoning department) to see if there is any information on file that would be helpful in estimating the elevation of the structure’s lowest floor. If the building does not have a basement, the elevation of the lowest floor may already be at or above the community’s lowest floor elevation requirement. If so, the property owner will need to secure an elevation certificate confirming that his or her home already meets the BFE requirement. The possibility of a lower premium is worth the trip to Town Hall.

Letters of Map Change

An LOMC (Letter of Map Change) is a letter from FEMA that reflects an official revision to an effective FIRM. There are several types of LOMCs, including the Letter of Map Amendment (LOMA), Letter of Map Revision (LOMR), and others. All LOMCs are issued in place of physically revising and republishing the effective FIRM.

If the land where your client’s structure is built meets or exceeds the BFE, he or she may wish to look into obtaining a LOMA. This is a document provided by FEMA to amend the FIRM. The LOMA confirms that the structure is officially excluded from the high-risk Special Flood Hazard Area (SFHA). Being removed from the SFHA could result in a much lower premium, especially if the property qualifies for an NFIP Preferred Risk Policy.

After your client confers with the appropriate community official, he or she can contact the FEMA LOMA Depot to discuss the application process. FEMA Map Specialists can be reached at 877-336-2627. Further information about LOMCs and other map changes can be found on the Letter of Map Amendment (LOMA) and Letter of Map Revision-Based on Fill (LOMR-F) Process page on the FEMA website.

Deductible Rates

If all else fails, explain to your client that various deductible options are available for NFIP insurance. The higher the deductible selected, the lower the premium to pay.  Remember to inform your client that a higher deductible will result in his or her being responsible for paying for damage up to that amount, out of pocket. You may want to have the policyholder sign an endorsement stating you have explained the consequence of a higher deductible.

Valuable Coverage

Regardless of the degree of flood risk your client faces, low-to-moderate or high, it is wise to purchase a flood insurance policy. Between 30 and 35 percent of all flood claims come from low-to-moderate flood risk areas. Always encourage your client to buy flood loss protection, even if the lender holding the mortgage for the building being protected does not require it.

Susan Bernstein is Editor of the eWatermark and writes regulations for the NFIP. She worked as the Mitigation Division Legal Liaison to WYO Companies and the FEMA Office of General Counsel for 10 years.