W-39: Private Flood Insurance- Practical Issues
Presenters: Greg Deimling, CPCU, ARM, CRIS, AMIM
Lauri Lydecker, CRCM
Ed Pasterick, FEMA
Private Flood Insurance – Practical Issues
Private Flood Insurance
Everything you need to know in 90 minutes
An Open Discussion between Greg, Lauri, Ed
and YOU, the attendee
Questions taken anytime - between us we will
discover the answers!
2
KNOWING YOU
A.Legal or Administrative
Lawyers, managers, supervisors, corporate
B. Lenders / Compliance
C. Production / Marketing
Producers, agents, brokers, marketing area
D. Underwriting / Loss Control
E. Others-not included above
3
Private Flood Insurance – The Mandate
Lender Requirements
•
Availability
NFIP AVAILABLE
NFIP NOT AVAILABLE
•
Suitability
4
Private Flood Insurance – The Criteria
FEMA CRITERIA
1.
2.
3.
4.
5.
6.
Licensure
Surplus Lines Recognition
Cancellation / Non Renewal Notice
Policy Coverage
Mortgage Clause
Legal Recourse
5
Private Flood Insurance – The Carrier
Financial Condition
• State Insurance Departments
• Admitted vs. non-admitted insurers
• State insurance guaranty funds
6
Private Flood Insurance – Cancellation
Cancellation and Non-Renewal Provisions
•
Perceived increases in risk
•
Loss activity
•
Advance notification – borrower / lender
•
Information about NFIP coverage
availability
7
Read the Policy – Breadth of Coverage
THE DEVIL
IS IN THE DETAILS
8
NFIP Flood Definition
Flood, as used in this flood insurance policy, means:
1. 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 your property) from:
a. Overflow of inland or tidal waters;
b. Unusual and rapid accumulation or runoff of surface
waters from any source;
c. Mudflow
2. 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 in A.1.a. above.
9
ISO CP 10 30 Flood Definition
g. Water
(1) Flood, surface water, waves, tides, tidal waves, overflow of any
body of water, or their spray, all whether driven by wind or not;
(2) Mudslide or mudflow;
(3) Water that backs up or overflows from a sewer, drain or sump; or
(4) Water under the ground surface pressing on, or flowing or
seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings.
But if Water, as described in g.(1) through g.(4) above, results in fire,
explosion or sprinkler leakage, we will pay for the loss or damage
caused by that fire, explosion or sprinkler leakage.
10
Water Definition
Company A – Form 1
14. Water Damage means accidental discharge or
leakage of water or steam as the direct result of the
breaking or cracking of any part of a system or appliance
containing water or steam.
Company A – Form 2
9. WATER DAMAGE
All water damage, except damage caused by or
resulting from the peril of FLOOD.
11
Company A Exclusions
e. Water
(1) Flood, Surface water, wave, tides, tidal wave. overflow of any
body of water or their spray, whether driven by wind or not;
(2) Mudslide or mudflow:
(3) Water which backs up from a sewer or drain; or
(4) Water under the ground surface pressing on, or flowing or
seeping through;
–(a) Foundations, walls, floors, or paved surfaces;
–(b) Basements, whether paved or not; or
–(c) Doors, windows, or other openings.
But we will pay for direct “loss” caused by or resulting fire or
explosion.
This Exclusion does not apply to property in transit.
12
Private Carriers Flood Definition
Definition of Flood – Carrier A
–Flood, including surface water. But if loss
or damage from fire explosion or leakage
from fire protective equipment results, we
will pay for that resulting damage.
13
Private Carriers Flood Definition
Definition of Flood – Carrier B
–Flood means the overflow from a stream
or any other body of water.
–Flood also means surface water, waves,
tidal waves or movements or spray from
any of these, whether driven by wind or not.
14
Private Carriers Flood Definition
Definition of Flood – Carrier C
A condition of inundation of normally dry areas,
including dewatered areas, that results from;
–A. Rainfall and resultant runoff, rising water, surface
water, storm surge, waves, tidal water, tidal wave or
tsunami, all whether driven by wind or not, and/or;
–B. The overflowing of any breach of streams, rivers,
lakes, reservoirs or other bodies or water; or spray from
any of the foregoing, all whether driven by wind or not.
15
Private Carriers Flood Definition
Definition of Flood – Carrier D
FLOOD· means:
A. A general and temporary condition of partial or complete inundation of normally dry land
areas, including dewatered areas, from:
1. The rising, overflow, or expansion beyond normal boundaries of any body of water or
watercourse, whether such body of water or watercourse is natural or man made;
2. The release or breaking of the boundaries of natural or man-made bodies of
water or watercourses including the release or overflow of any water impounded
by a dam, dike, reservoir or any other barrier or diversionary device;
3. Tsunami, waves, tide or tidal waters;
4. The unusual and rapid accumulation or runoff of surface waters from any source;
5. Mudslides or mudflows where mudslide or mudflows means a river of liquid and
flowing mud on the surfaces of normally dry land areas, as when earth is carried by
a current of water and deposited along the path of the current; or the spray from any
of the foregoing, whether driven by wind or not.
B. Direct physical loss or damage by fire or explosion resulting from Flood as defined above,
will not be considered loss by Flood within the terms and conditions of this policy.
16
Private Flood Insurance – Policy Coverage
Limits of Insurance
•
NFIP vs. private – Advantages
• Higher limits
• Additional coverages
• Excess coverage
•
Potential disadvantages
• Per loss and aggregate limits
17
Private Flood Insurance – Policy Coverage
Specific vs. Blanket Insurance
•
Multiple properties
•
Proximity of locations
•
Loss limits
18
Private Flood Insurance – Policy Coverage
Flood as a Sub-Limit
•
Flood limits may be lower
•
Sub-limits may not be shown on
evidence of coverage document
19
Loss Settlement – Policy Coverage
NFIP
•
Actual Cash Value
•
Replacement Cost
Private
•
Actual Cash Value
•
Replacement Cost
•
Functional Replacement
20
Private Flood Insurance – Exclusions
Flood Zone Exclusions
•
Always read the policy Exclusions and
the Flood Endorsement document
•
NFIP’s “Reduction and Reformation of
Coverage”
21
Private Flood Insurance – Exclusions
Flood Zone Exclusions - Example
“Flood coverage provided by this endorsement
does not apply to any property located in the
following flood zones, as determined by the
Federal Emergency Management Agency’s flood
insurance rating maps: V, V-1 through V-30, VE
or VO.”
22
Private Flood Insurance – Waiting Periods
Waiting Periods
•
Many private policies – less than
standard NFIP 30-days
•
Lender-required policies
23
Private Flood Insurance – Policy Breadth
Deductibles
•
Breadth of coverage requirements
•
Deductibles equal to NFIP maximum
•
Percentage deductibles
• % of coverage / % of loss
•
Borrower’s financial condition
24
Private Flood Insurance – Other Insurance
“Other Insurance” Clauses
•
Primary or Excess policies
•
Payouts – Pro rata or Excess
•
Only in excess of NFIP maximum
25
Private Flood Insurance – Other Insurance
“Other Insurance” Clauses - Example
“We will pay that portion of the loss which is in
excess of the greater of the applicable limit of the
primary flood insurance for the covered property;
or the maximum coverage limit available through
the National Flood Insurance Program (NFIP). No
loss proceeds will be paid until the primary insurer
has paid their full limit of insurance for the covered
property.”
26
Private Flood Insurance – Mortgage Clause
The Mortgage Clause
•
Continuing coverage regardless of
acts or neglect by the insured
•
SFIP – 30 days from Notice
•
Private – May not extend past the
policy expiration date
27
Private Flood Insurance – Legal Recourse
Legal Action Clause
•
NFIP – 1 year from claim denial or
payment
•
Private policies – State requirements
28
Private Flood Insurance
Regulatory Examinations
•
Review of General Practices and
Procedures
•
Proof of submission for “Notice to
Borrower” Form
•
Timing of requirements for notices
•
Proper Coverage Amount
29
Private Flood Insurance
Regulatory Examinations
•
Review of Procedures for addressing
reclassification by flood map revisions
•
Exercises forced placement
•
Review contractual obligations
30
Private Flood Insurance
Regulatory Penalties Required
•
Place Insurance
•
Escrow Flood Insurance Premiums
•
Failure to provide Notice Requirements
•
Force place the insurance
31
Private Flood Insurance
The Aggrieved Borrower
•
Flood Damaged Property in SFHA
•
No Coverage in Place
•
Cause of Action Against the Lender
32
Private Flood Insurance
Condominium
•
Association vs. Unit Owner
•
Maximum Limit Available
•
Duplicate coverage
33
Private Flood Insurance – Wrap Up
Private Flood Policy Considerations
•
MPG 6 item “checklist”
• Are “shortcomings” significant?
•
Private insurance market does have
a roll
• Excess, Non-participating communities
•
Lender’s ultimate responsibility to
confirm suitability
34
Private Flood Insurance
35
Thank You
36