Levees and the National Flood Insurance Program: Improving Policies and Practices


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The NFIP is expected to be self-supporting in an average loss year, as reflected in past experience. In an extraordinary year, as Hurricane Katrina demonstrated, losses can greatly exceed premiums, leaving the NFIP with a huge debt to the U. Treasury that it is unlikely to pay back. Hurricane Katrina losses and the percentage of flood damage that was uninsured led to calls for a revamping of the entire flood program. Flood adjusters must be trained and certified to work on NFIP claims.

NFIP general adjusters typically re-examine a sample of flood settlements. Insurers that fail to meet NFIP requirements must correct problems; otherwise they can be dropped from the program. What's in a typical policy: Flood insurance covers direct physical losses by flood and losses resulting from flood-related erosion caused by heavy or prolonged rain, coastal storm surge, snow melt, blocked storm drainage systems, levee dam failure or other similar causes.

To be considered a flood, waters must cover at least two acres or affect two properties. Replacement cost coverage pays to rebuild the structure as it was before the damage. Actual cash value is replacement cost minus the depreciation in value that occurs over time. Coverage for the contents of basements is limited.

To prevent people from putting off the purchase of coverage until waters are rising and flooding is inevitable, policyholders must wait 30 days before their policy takes effect. Flood Risk: As with other types of insurance, rates for flood insurance are based on the degree of risk. FEMA assesses flood risk for all the participating communities, resulting in the publication of thousands of individual flood rate maps.

Flood plain maps are redrawn periodically, removing some properties previously designated as high hazard and adding new ones. New technology enables flood mitigation programs to more accurately pinpoint areas vulnerable to flooding. As development in and around flood plains increases, run off patterns can change, causing flooding in areas that were formerly not considered high risk and vice versa.


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People tend to underestimate the risk of flooding. The highest-risk areas Zone A have an annual flood risk of 1 percent and a 26 percent chance of flooding over the lifetime of a year mortgage, compared with a 9 percent risk of fire over the same period. In addition, people who live in areas adjacent to high-risk zones may still be exposed to floods on occasion. Since the inception of the federal program, some 25 to 30 percent of all paid losses were for damage in areas not officially designated at the time of loss as SFHAs. NFIP coverage is available outside high-risk zones at a lower premium.

In the Biggert-Waters Flood Insurance Reform Act was passed in an attempt to make the federal flood insurance program more financially self-sufficient by eliminating rate subsidies that many property owners in high-risk areas receive. But in March Congress rescinded many of the rate increases called for by the Biggert-Waters Act. The new law reduced some rate increases already implemented, prevented some future increases and put a surcharge on all policyholders.

The measure also authorized funds for the National Academy of Sciences to complete an affordability study. The law prevents any policyholder from seeing an annual rate increase exceeding 18 percent. The 18 percent cap will result in refunds in some cases. Refunds began in October FEMA has a fact sheet on who is eligible for refunds. It also ends a provision in Biggert-Waters that removed a subsidy once a home was sold.


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People who purchased homes after Biggert-Waters became law will receive a refund. Many lawmakers in coastal states were concerned that the higher cost of flood insurance would have a negative impact on the real estate industry. According to data from FEMA, most current flood insurance policyholders 81 percent, or 4. However, no such standard agreement exists in regards to contracting with a direct servicing agent.

FEMA proposes to remove section FEMA also provides this information on its website.

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After removing current paragraph b , FEMA proposes to renumber current paragraph c as paragraph b. With respect to section This change will allow the agency greater flexibility in providing public notice of the identity of its direct servicing agent without having to undertake a full rulemaking to do so. First, the policyholder may cancel a policy that covers property for which the policyholder is no longer required to maintain flood insurance because a Letter of Map Amendment issued under part 70 has determined that the property is not located in an SFHA.

In addition to section FEMA proposes to remove current section FEMA proposes to entitle section This paragraph would also provide the rules and limitations governing the applicability of this nullification reason, as well as the associated premium refunds. FEMA has previously handled situations where property was ineligible for flood insurance at the time of application via NFIP procedures.

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This paragraph would also Start Printed Page provide the rules and limitations governing the applicability of this nullification reason, as well as the associated premium refunds. Such a situation may arise where a policyholder's premium payment check is returned for insufficient balance or where a policyholder cancels his or her policy before it becomes effective. The provision would also clarify that in the rare instance where the NFIP pays a claim for a policy that was actually nullified before the policy's effective date, the policyholder would have to either return the claim payment or pay the premium using the claim payment.

These reason codes are based on basic principles of insurance that the program has applied with regulatory instruction. This subsection would state that for building coverage, a policyholder ceases to have an insurable interest if the building has been sold, destroyed, or removed. This subsection would further state that for contents coverage, a policyholder ceases to have an insurable interest if the contents were sold, transferred ownership, or have been removed from the described location.

This paragraph would also provide the rules and limitations governing the applicability of this cancellation reason, as well as the associated premium refunds. Reason Codes 1 and 2 are necessitated by basic principles of insurance that prevent an insurer from insuring property in which the policyholder does not have an insurable interest. The new paragraph would state that a policyholder may cancel a policy if there was a requirement by a lender, loss payee, or other Federal agency to obtain and maintain flood insurance pursuant to statute, regulation, or contract, but there no longer is such a requirement.

Such situatons would include where i the policyholder has paid off his or her mortgage, ii the policy was required by the mortgagee in error, or iii the property has been removed from the SFHA, and accordingly from the mandatory purchase requirement, through a revision or amendment to the FIRM, including the issuance of a Letter of Map Amendment LOMA removing a property from an SFHA. The paragraph will further state that in such instances, FEMA would only provide a pro rata refund of the premium for the current policy year, as calculated from the date of the cancellation request.

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Surcharges or other fees would not be refunded. U of the SFIP. The provision would allow policyholders to create duplicate policies, and then cancel the policy with the earlier effective date, to establish common expiration dates with other coverage. U, which allow for cancellation of duplicate NFIP policies. The proposed subsection would include two paragraphs. Paragraph i would state that if more than one policy covers the same building not in accordance with applicable regulation and SFIP terms and conditions, FEMA must nullify the policy with the later effective date.

Paragraph ii would state that if both policies have the same effective date, the policyholder may choose which policy will remain in effect, at which point the same refund rules laid out in paragraph i apply. This paragraph would also provide the rules and limitations governing the applicability of this nullification reason. Each paragraph establishing an exception would also provide the premium refunds associated with cancellations falling under the exception. U of the SFIP in practice. This section would also state that the policyholder will not receive a refund of any premium, fees, or surcharges for policies cancelled pursuant to this section.

In either case, the cancellation would take effect as of the date of the fraudulent act or material misrepresentation of fact. This is taken from current Article VII. B of the SFIP, which states that fraud by the agent or the insured voids a policy. It does not apply to agents or brokers associated with WYO companies. FEMA proposes several nonsubstantive changes designed to clarify the existing section. Currently, section FEMA believes the proposed title better reflects the contents of the section. Accordingly, FEMA proposes to add a new paragraph a that only includes the requirement and to redesignate current paragraphs a and b as paragraphs b and c , respectively.

Accordingly, FEMA also proposes to make corresponding changes to proposed paragraph b by removing the existing references to state licensing requirements.


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FEMA does not intend to substantively change the licensing requirements of DSA agents, but rather intends to separate this requirement from other subject matter to improve overall clarity of the section. District Court for the district in which the insured property was situated and describes service of process requirements.

FEMA proposes to revise section Executive Order emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

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Accordingly, OMB has not reviewed it. As this rule is not a significant regulatory action, this rule is exempt from the requirements of Executive Order FEMA implemented these changes via the Flood Insurance Manual or other related guidance documents as they were unambiguous changes that left no discretion on the part of the agency to implement.

Now FEMA proposes to update the regulations accordingly. Overall, there are 34 identified proposed regulatory changes in this rule itemized in Table 1 below. The vast majority of these changes are limited to nonsubtantive clarifications.

An Overview of the National Flood Insurance Program

The no action baseline is an assessment against what the world would be like if the proposed rule is not adopted. The pre-statutory baseline is an assessment against what the world would be like if the relevant statute s had not been adopted. By considering both baselines we are able to consider full costs of the action. Under a no-action baseline, this proposed rule would carry no transfers or quantifiable costs.

The proposed rulemaking would make material improvements to the language and organization of the NFIP's regulations, but such clarifications and codifications would not result in any quantifiable burden or benefit. WYO companies would, however, incur opportunity costs as they spend time becoming familiar with the proposed changes. The proposed rule would result in cost savings associated with no longer requiring individual waivers for condominium loss assessment restrictions. The below analysis adopts a consistent pre-statutory baseline of in order to capture the effects of the proposed rule, including those of modifications already implemented through interim actions.

National Flood Insurance Program

The summary table below Table 1 presents the proposed rule's components based on the two categorizations above, including the related statutory mandates BW, HFIAA or both , a description of their effects and their likely impact. While the proposed rulemaking would make material improvements to the language and organization of the NFIP's regulations, such changes would not result in any quantifiable burden or benefit. Prior to BW, there were only two exceptions to this day waiting period. The first exception was for the initial purchase of flood insurance in connection with the making, increasing, extension, or renewal of a loan.

The second exception was for the initial purchase of flood insurance pursuant to a revision or updating of floodplain areas or flood risk zones, if such purchase took place within one year of the notice of such revision. This new exception applies to situations where the flooding to an insured privately owned property is the result of flooding on Federal land that was caused or exacerbated by post-wildfire conditions, also on Federal land.

FEMA implemented this new exception via bulletin. To date, circumstances have not existed requiring FEMA to apply this exception. The proposed change updates the regulations to reflect the revised statutory language and existing Agency practice. Additionally, due to both the brief window of applicability the day waiting period after initial enrollment in the NFIP and the narrow circumstances to which this exception applies flood damage due to flood on Federal land caused, or exacerbated, by post-wildfire conditions , FEMA believes the exception would continue to be rarely invoked.

This provision serves as an added enticement to potential enrollees of the NFIP to join the NFIP if they believe that a wildfire on Federal land may cause, or exacerbate, flooding on their property. This provision serves mostly as an added comfort to potential enrollees of the NFIP. In accordance with the data examined, there has not been and FEMA estimates that there would continue to be no additional burden on any party.

Levees and the National Flood Insurance Program: Improving Policies and Practices Levees and the National Flood Insurance Program: Improving Policies and Practices
Levees and the National Flood Insurance Program: Improving Policies and Practices Levees and the National Flood Insurance Program: Improving Policies and Practices
Levees and the National Flood Insurance Program: Improving Policies and Practices Levees and the National Flood Insurance Program: Improving Policies and Practices
Levees and the National Flood Insurance Program: Improving Policies and Practices Levees and the National Flood Insurance Program: Improving Policies and Practices
Levees and the National Flood Insurance Program: Improving Policies and Practices Levees and the National Flood Insurance Program: Improving Policies and Practices
Levees and the National Flood Insurance Program: Improving Policies and Practices Levees and the National Flood Insurance Program: Improving Policies and Practices
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