FINN EXAM 2 PDF

Personal Automobile Policy Personal Auto Policy Coverage Parts A - Liability B - Medical Payments C - Uninsured/ Underinsured Motorists D - Physical Damage Who is Insured for Liability Coverage? Named insured and resident relatives for the use of any Auto ○ Any auto inc...

Personal Automobile Policy Personal Auto Policy Coverage Parts A - Liability B - Medical Payments C - Uninsured/ Underinsured Motorists D - Physical Damage Who is Insured for Liability Coverage? Named insured and resident relatives for the use of any Auto ○ Any auto includes owned, rented, or borrowed vehicle The permissive user of a covered auto ○ Any person driving Ron’s car with reasonable belief of permission Any person or organization legally liable for an insured person’s use of covered auto Covered Autos Vehicles listed in the declarations Temporary substitute vehicle Newly acquired auto Owned trailer (liability coverage only) Coverage for Newly acquired auto Liability coverage Physical damage coverage Replacement auto Automatic for Must report policy term within 30 days Additional auto Must report Must report within 30 days within 30 days Temporary Substitute Vehicle Nonowned (rented or borrowed) auto that temporarily replaces a covered auto, which is out of service because of repair, service, loss, or destruction Automatic coverage for liability Broadest coverage for comp and collision applies to any covered auto listed in the declarations Liability Coverage Bodily Injury (BI) and Property Damage (PD) for which the insured is legally liable Split limits: ○ Example: $100/300/50 ○ BI per person/ BI per accident/ Property Damage Defense cost in addition to BI or PD High limits of liability are strongly recommended in order to cover other driver’s medical expenses, loss of income, pain & suffering State-Mandated Minimum Liability Limits Alabama 25/50/25 Florida 10/20/10 Georgia 25/50/25 North Carolina 30/60/25 South Carolina 25/50/25 Tennessee 25/50/15 Virginia 25/50/20 Liability Coverage If driving out-of-state, PAP will provide State mandated limits if higher than policy limits ○ Ex. S.C. motorist driving in N.C. Policy Limits Example Patrick has a PAP with Liability, Med Pay, Physical Damage, and UM & UIM coverages. His liability limits are $50,000/ 100,000/ 25,000. Med Pay limit is 5,000. Patrick failed to stop at a red light and hit an SUV. The SUV sustained damages of $15,000. Three passengers in the SUV incurred the following bodily injury: Passenger A - $20,000; B-$60,000; C-$10,000 Patrick incurred personal medical bills of $10,000 Patrick’s car sustained damages of $12,000 How will Patrick’s PAP apply? Subrogation What is subrogation? ○ Insurance company pays insured for damage to insured’s property and then pursues recovery against negligent third party Purposes of subrogation: ○ Prevents insured from collecting twice. Insured person can not collect from adverse driver and from his/her insurance company. Reinforces the principle of indemnity ○ Holds negligent person responsible ○ Holds down insurance rates Examples: Automobile accident, Fire loss to Walgreens Drugs (electrical origin) Kristen’s Automobile Accident Drunk driver runs red light and hits Kristen’s car, causing $9,000 damage. Kristen should first pursue liability recovery from the adverse driver. If adverse driver/insurance company refuses to pay, Kristen can collect from her insurance company if she has collision coverage. Kristen’s insurance company will pay her the actual cash value (replacement cost minus depreciation) of her vehicle minus the deductible. Kristen’s insurance company then pursues subrogation against adverse driver. Subrogation Rules If the insurance company indemnifies Kristen for damage to her vehicle and then successfully subrogates against the negligent party, the insurance company will be reimbursed for the actual cash value of the vehicle, and the insured (Kristen) will be reimbursed for her $500 deductible. The insured person under auto policy can not waive subrogation rights of insurance company. ○ For example, if insured driver admits fault or attempts to settle at the scene, insurance company could deny recovery. However, permission is granted in the Homeownerspolicy for insured to waive subrogation rights before loss. Rental agreement requires that tenant accept responsibility for any damage to the property. Liability Exclusions Intentional Injury (road rage) Property owned , rented or borrowed (golf clubs in the trunk). Personal property is covered under the HO policy. BI to an employee of the insured driver (WC policy) ○ Coverage is provided to a domestic employee Public or livery use (limousine, Uber, Lyft) Auto liability insurance does not extend to permissive users (non-owners) engaged in the auto business Other Liability Exclusions Motorcycles or other two-wheel vehicles Vehicles furnished for regular use of named insured or family member. ○ Company furnished vehicle ○ Extended Non-Owned Coverage endorsement will eliminate this exclusion. Important to add to your personal auto policy if your employer provides you with a Company Car. Medical Payments Medical expenses are covered without regard to driver’s negligence Named insured and family members are covered ○ Occupying any vehicle (owned or non-owned) ○ Struck by auto as a Pedestrian Other persons are covered ○ Occupying a covered auto operated by the insured Exclusions ○ Same as liability exclusions plus vehicle used as residence is excluded for med pay Uninsured Motorist (UM Coverage) BI or Property Damage to your insured vehicle caused by an uninsured motorist. Uninsured motorist must be legally liable. ○ Need police report. Insured Persons under UM coverage ○ Named insured and resident relatives ○ Others occupying covered auto ○ Others entitled to damages (spouse)Uninsured Motorist (UM Coverage) Uninsured Drivers and Minimum Limits State | % Uninsured Drivers | State Minimum Limits Florida 24 10/20/10 Tennessee 24 25/50/15 Alabama 22 25/50/25 Georgia 16 25/50/25 North Carolina 14 30/60/25 Virginia 11 25/50/20 South Carolina 11 25/50/25 National Avg. 13.8 (1 in 7) What is an Uninsured Vehicle ? No auto liability policy applies Policy limits are below State’s financial responsibility limits Hit and run vehicle ○ Vehicle runs red light at high speed ○ Two fatalities plus severe BI to third passenger Insurance company is insolvent Underinsured Motorist (UIM Coverage) The negligent driver has insurance, but the limits of the negligent driver’s policy are less than the named insured’s UIM limits In NC, combined UM/UIM is mandatory UIM coverage pays the difference between the UIM limit, and the amount collected from the negligent driver, or the actual BI sustained whichever is less. Personal Auto Physical Coverage Physical Damage deductibles Deductibles: $100, 250, 500, 1,000 Transportation Expense endorsement ○ Indemnifies the insured for transportation expense because of loss to an owned or non-owned auto ○ Example: Pays rental car expense up to a limit of $40-$50 daily/ $900 aggregate Damage to your Auto (physical damage coverages) Collision - upset or impact Other than collision (Comprehensive) ○ Examples: Fire, Theft, Wind, Flood, VMM, Deer, Glass Covered Vehicles: ○ Owned auto ○ Non-owned Auto Not furnished or available for regular use Physical Damage Exclusions Wear and tear, freezing, mechanical or electrical breakdown Electronic equipment (GPS Navigation) unless the equipment is permanently installed in the vehicle. Trailer or camper body unless listed in the declarations Custom furnishings or equipment unless added by endorsement (Customized Van) Physical Damage - Policy Limits Lesser of ACV or the amount necessary to replace with the property of like kind and quality OEM (original equipment manufacture) vs. After Market Parts Recovery is usually based on After Market Parts If the cost to repair equals 75% or more of ACV, the insurance company will negotiate a total loss payment Some companies offer Replacement Cost coverage as an option Diminution in value is not covered under physical damage but will be covered in a liability claim. Lease Gap Coverage added by endorsement for leased or financed vehicle Pays the difference between the insurance settlement for a total loss vehicle and the lease or loan pay-off amount Other Insurance: Liability and Physical Damage Other insurance applies if a permissive user is driving the owner’s vehicle Owner’s coverage is primary Nonowner's coverage is excess Policy Territory US, US territories or possessions Puerto Rico Canada Vehicles operated outside the Policy Territory are not covered. PAP Rating & Shopper’s Guide Automobile Rating Factors Territory Use of the car: (pleasure, business, to or from work or school, farm) Age, gender, marital status (Not NC) Less than 3 years of driving experience (NC) Driving record Credit Score NC Reinsurance Facility recoupment Discounts – multi-policy, multi-car, mature driver Shopper’s Guide for Auto Insurance Purchase adequate limits for BI and PD ○ $100/300/100 ○ $250/500/100 (Recommended) ○ $500/500/100 Purchase UM/UIM with limits of $500,000 or $1 million Comp. and collision on newer vehicles with $500 or higher deductible. Extended Transportation Expense to pay for rental car following comp or collision loss Lease Gap Coverage for leased or financed vehicle Extended Non-Owned Endorsement under PAP if driving company-furnished car Purchase $1 million Umbrella Shopper’s Guide for Auto Insurance Improve Your Driving Record (Defensive Driving) Avoid distracted driving Maintain Good Credit Score: 670 – 720 range Insure auto and home with the same company Avoid placement in the NC Reinsurance Facility ○ High Surcharge if any accidents or driving violations on MVR ○ Physical damage insurance is not available in NC Reinsurance Facility – need to access physical damage through sub-standard market with substantial surcharge Residual Auto Markets Residual Automobile Insurance Markets 1. Assigned Risk Plans 2. Joint Underwriting Associations (JUA) 3. Reinsurance Facility Assigned Risk Plans Applies in Virginia Policy assignments rotated based on the company’s market share Higher premium than the voluntary market Not user-friendly – the consumer has no choice of company Little incentive for Insurance Companies to provide superior service Assigned Risk Plan Joint Underwriting Association Applies in South Carolina Operates like an insurance company A few servicing carriers administer the policies (issue policies and pay claims) All companies in the state share JUA losses and expenses based on market share Rates are based on JUA loss experience Higher premium than voluntary market Reinsurance Facility Applies in North Carolina Insurance companies must accept all applicants (liability coverages only) Insured selects insurance company and agent Each insurance company issues and services their own Facility policies, including claims payment The insurance company receives claims reimbursement from N.C. Reinsurance Facility Standard rates for “clean drivers” Higher than standard rates for “dirty drivers” with prior accidents & convictions Facility losses and expenses shared by all auto insurance companies in the state based on market share Facility losses are recouped by surcharging all drivers in N.C. (hidden subsidy). ○ “Clean Driver” Recoupment ○ Facility Loss Recoupment 20% of autos in NC are insured through Reinsurance Facility Property Insurance Values, Coinsurance, and Deductibles Property Valuation Methods Replacement Cost – Construction cost based on current value of labor and materials assuming like kind & quality. Residence under Homeowner's policy is based on current replacement cost. Actual Cash Value (ACV) = Replacement Cost minus Depreciation. Personal property under the Homeowner's policy is based on ACV but can be endorsed by RC. Market Value – Price agreed upon between unrelated buyer & seller. Not relevant in Homeowners insurance. Stated or Agreed Value – an option for the valuation of personal property that has unique value (jewelry, antique furniture, collectibles, antique or classic vehicles) Problems with replacement cost insurance to value Insured typically estimates the value at policy inception Values change with inflation, additions, and renovations, and cost of labor & materials including price surges following a storm event Replacement cost value is often difficult to measure because of fluctuations in values of labor and materials Solutions to Property Valuations Hire an appraiser and/or use an insurance company appraisal at policy inception to determine the current replacement value of the residence Review and revise policy limits based on inflation and adjust for renovations or additions to the residence Most insurance companies will increase home value annually by change in current construction cost (percentage increase in labor & materials) Add Agreed Value endorsement to guarantee RC coverage (home must be relatively high value and less than 30 years of age) Coinsurance in Property Insurance The amount of insurance must be at least 80% of the replacement value of the residence The purpose is to encourage the policyholder to carry adequate limits of insurance Enables insurance companies to collect adequate premiums based on current policy limits Coinsurance Encourages Insurance to Value Most losses are partial, but the premium rate is based on the full value of the property Basing rates on the full value of property creates a lower rate per $100 Coinsurance requires that those insuring at less than 80% of full replacement value must pay a penalty if a loss occurs Coinsurance Formula Formula: (Did / Should) x Loss “Did” is the current amount of insurance carried “Should” is the Coinsurance Percentage x Current Property Replacement Cost Example Assume $200,000 home with 80% coins., $120,000 insurance carried and $10,000 loss ○ (Amt. carried / Amt. required (80% x 200,000)) x loss ○ (Did/Should X loss) (120,000/ 160,000) x 10,000 = 7,500 (insurance recovery) The coinsurance penalty is $2,500 Deductible applies after coinsurance ○ (120/160 x 10,000) – 500 deductible = 7,000 Coinsurance and Inflation Value of property for coinsurance purposes is determined as of the date of loss Replacement cost valuation used for the residence structure in Homeowners Insurance Important that policy values are updated annually Example Stephen purchased a home in 2000 with a replacement cost of $250,000. He insures the home in 2000 for $200,000, and the replacement cost of the home in 2010 is $374,000 (4.1% annual inflation) Stephen’s homeowners limit in 2010 is still $200,000 Insurance required by coinsurance is.80 x 374,000 = 299,200 200,000/299,200 =.67 coinsurance penalty applied to the amount of loss Coinsurance in Homeowners Policy Damage to the residence will be paid on a replacement cost basis if the home is insured to at least 80% of the current replacement cost If the policy amount is less than 80%, the policy will pay the greater of Actual Cash Value (RC – Depreciation) or the amount produced by the application of the coinsurance formula Actual Cash Value for HO Personal Property ACV = Current replacement Cost less depreciation Example: Theft of a TV ○ Current replacement cost is $800 (RC as of the date of the loss) ○ Assume eight-year life expectancy and four years old (50% depreciation) based on current age and life expectancy ○ ACV is $800 – 400 = $400 Stated Value for Scheduled Items Stated Value (antiques, fine arts, jewelry, silver). Pays stated value in the event of total loss Important to schedule valuable items using the Personal Articles Floater under the Homeowners Policy for Stated Value, Open perils (all-risk) An appraisal is usually required before scheduling high-value items Classic Car should be covered under the Auto policy for stated value (not for ACV) Deductibles in Property Insurance Flat ($500 or $1,000 per loss) Percentage named storm deductible (2% of policy limit) Percentage Deductible Jeff has a $400,000 home with a $1,000 deductible (except for named storm) and a 2% named storm deductible. Limit of insurance on the house is $380,000. A tree falls on the house during Hurricane Florence causing $75,000 damage. The deductible amount is.02 x 380,000 = $7,600 Homeowners Policy Homeowners Eligibility Owner occupied ○ Detached Residence ○ Town Home ○ Condominium Home Homeowners Package Policy 1. Section I (Property) 2. Section II (Liability) Persons Insured Named Insured and Spouse Resident Relatives Full-time student under age 24 away from home Others under age 21 and in the care of the named insured or of a resident relative (example: foreign exchange student) Homeowner Forms Section 1 coverages (forms 2,3,7&8) Dwelling Loss Settlement Replacement C0st coverage is subject to 80% coinsurance. If insurance is less than 80% of RC, coinsurance penalty applies but loss settlement will not be less than ACV. ○ Must replace damage to obtain RC coverage. Can build at an alternate location. Recommend Guaranteed RC or Agreed Value Endorsement for Homeowners' policy Guaranteed Replacement Cost Endorsement on the Homeowners The home must be insured to 100% replacement cost Value adjusted annually based on construction cost index plus any renovations & additions If total loss, the insurance company will replace the home even if the replacement cost exceeds the policy limit Usually not available for older homes (30 years +) Personal Property Coverage Blanket Coverage ○ All personal property ○ 50% (HO 3) or 70% (HE 7) of coverage A (Dwelling Limit) ○ Broad Named Perils (HO 3) or Open Perils (HE 7) ○ Worldwide coverage ○ Actual Cash Value loss settlement unless Personal Property Replacement Cost Endorsement added Personal Property Loss Settlement HO 3 Form provides Actual Cash Value coverage for Blanket Personal Property. Need to add Replacement Cost by endorsement. HE 7 Form provides Replacement Cost for Blanket Personal Property Recommend Personal Property Replacement Cost endorsement to HO 3 or upgrade to HE 7 Form. Special Aggregate Limits Theft of jewelry, furs ○ Aggregate limit of 1,500 Theft of firearms, silverware ○ Aggregate limits of $2,500 for firearms and $2,500 for silverware Watercraft including their trailers ○ Aggregate limit of $1,500 Scheduled Property Coverage Stated Value (jewelry, antiques, fine arts, silver). Important to schedule valuable items using the Personal Articles Floater under HO Appraisal will be required before scheduling Business Property HO limits are $2,500 on-premises, $500 off-premises Add Home Business Endorsement to include business property under coverage C with limits up to $10,000 (on-premises) and $5,000 (off-premises) and to extend liability coverage to incidental business exposures on-premises. Businesses with off-premises operations, such as contractors, must be insured by a separate commercial insurance policy. Property that is Excluded Motor vehicles are excluded except: ○ Vehicles for servicing premises or for providing handicapped mobility. Other types of motor vehicles are not covered. Watercraft is excluded if the value exceeds $1,500 Land excluded Business records and electronic business data excluded (can cover by scheduling computer under Personal Articles Floater) Credit or debit cards (limited to $500 coverage for unauthorized use) Additional Coverages Debris removal after covered peril (within policy limits) Loss assessment by Homeowners Association $1,000–must result from covered peril - can increase by endorsement. Ordinance or increased cost to meet building code - resulting from a covered peril. Usually older homes. ○ 10% of Dwelling limit increase by endorsement Exclusions Flood ○ If both wind and flood, wind peril is covered, and flood is excluded Earthquake ○ Add by endorsement subject to Company acceptance. EQ may not be available in some high-risk areas. Vandalism is excluded if the dwelling is vacant for 60 days Mortgage Clause The mortgagee (financial institution) has an insurable interest in the dwelling Mortgagee listed in the policy by name & address The mortgagee’s coverage was not voided by the insured’s actions Mortgagee requires proof of Homeowners coverage from the property owner at closing or will make forced placement at a high premium Section I and II Conditions Cancellation by the insurance company ○ First 60 days – any reason ○ After 60 days – material misrepresentation only ○ Non-payment of premium – 10 days notice Non-renewal by the insurance company ○ Any reason - 30 days' notice prior to the renewal date. Homeowners Section II Personal Liability Pays damages for Bodily Injury and Property Damage plus defense cost caused by insured’s negligence. Arising from the insured’s premises, activities, or animals The usual limit is $300,000 per occurrence Exs: Guest trips & falls, hunting accident, dog bite, fire damage to a hotel room or apt. Medical Payments Without regard to legal liability Arising from insured’s premises, activities, or animals. No coverage for the insured, regular residents of the household, or tenants Coverage for guests & residence employees Minimum limit of $1,000 Ex: Neighbor’s child falls off swing, guest slips & falls on premises Motor Vehicles Exclusion – Liability and Med Pay Liability excluded except for: ○ Vehicle in dead storage ○ Service of the premises (Riding Mower) ○ Handicap mobility (Motorized wheelchair) ○ Recreational vehicle operation on-premises (ATV) ○ Non-owned recreational vehicle ○ Golf cart: Golfing on the Golf Course Private residential community (Sun City) Recreational Vehicles ATV Snowmobile Watercraft Exclusion – Liability and Med Pay Liability excluded except for: ○ Sailboats under 26 feet ○ Watercraft 25 HP or less outboard ○ 50 HP or less inboard and not owned by the insured ○ Add watercraft to HO by watercraft endorsement Other Exclusions - Liability and Med Pay Aircraft Expected or intended injury ○ Assault & Battery excluded ○ Reasonable self-defense is covered Rental Rental of the premises excluded except: ○ Occasional personal rental of the residence for 7 days maximum ○ One room of the home for residential use – an example is a bedroom for a Foreign Exchange student Rental of the premises through a rental agency or rental through Airbnb is considered business use and excluded under the HO Business Activities Excluded for Liability Business is defined as a trade, profession, or occupation engaged in full-time, part-time, or occasional If the above does not apply, any activity engaged in for money or compensation is still a business Exceptions to the Business Exclusion Less than $2,000 annual compensation Insured person under 21 with part-time, self-employed business Volunteer activities with no compensation other than expense reimbursement Home daycare services with no compensation or day care of a relative To insure business activities, except automobile sales & service, with operations only on residence premises, add Home Business Endorsement Home Business Endorsement Insures business property located on the residence premises Includes incidental business property under coverage C with limits up to $10,000 (on-premises) and $5,000 (off-premises) Includes premises and operations liability coverage Additional Liability Coverages $1,000 damage to property of others without regard to legal liability (Voluntary Property Damage) ○ No coverage for intentional property damage by an insured age 13 + $1,000 loss assessment by Homeowners Association (town home or condo) Fire Legal Liability ○ Liability for fire damage to property rented to the insured ○ Coverage up to the full liability limit provided in the HO liability section Homeowners Liability Endorsements Personal Injury ○ False arrest, wrongful eviction, libel, slander Watercraft (marine) Coverage ○ Covers watercraft for physical damage & liability Volunteer Activities Liability for volunteer activities (no compensation) is covered under HO for BI and PD, since not considered a business Directors and Officers (D&O) Liability incurred by volunteer is not covered under HO ○ Financial mismanagement ○ Discrimination ○ Humiliation ○ Harassment D&O insurance must be furnished to volunteers by the host organization Shoppers Guide for Homeowners Seek advice from an Agent with CPCU, CIC, or CRM Purchase HE 7 or HO 3 (property not eligible for HE 7) Insure 90-100% of current Rep. Cost of home Purchase Flood policy through the Federal Flood program High deductibles ($500 or higher) Improve your Credit Score Discounts – Multi-policy (home & auto), owner age 55+, alarm system, new home Purchase Umbrella (Limits of $1-3 million) ○ Excess over Homeowners and Automobile policies Summary of Recommended Endorsements Earthquake Endorsement Personal Articles Floater (Scheduled Property) Personal Property Replacement Cost (included in HE 7) Guaranteed Dwelling Replacement Cost Increased Loss Assessment for Town Home & Condo Increased Ordinance & Law Coverage for older home Personal Injury-False arrest, wrongful eviction, libel, slander Watercraft Physical Damage and Liability Home Business Endorsement (no off-premises operations) Cost of Homeowners Insurance Based on Coverage A (Dwelling Amount) Construction Type Inland or Coastal Location Fire protection class Deductible - $500 minimum for Section I Credit Score Clue – loss history Consent to Rate in N.C. North Carolina Homeowners Market Availability of HO coverage and affordability issues ○ Coastal, seasonal, vacancy ○ Prior claims (CLUE Report) ○ Age of home ○ Lack of supporting coverage ○ Low Credit (FICA) Score Underwriting Actions ○ Cancellation or non-renewal of Homeowners Insurance ○ Premium surcharge (Consent to Rate) ○ Limited perils ○ High deductible and/or percentage named storm deductible Flood Insurance NFIP Deficit NFIP borrows from the U.S. Treasury to cover deficits and loans are paid back with interest The current NFIP debt to the U.S. Treasury is $20.5 billion annually Legislative Amendments to NFIP 1973- Flood Insurance mandatory for property in SFHA with a federally regulated mortgage 1994 -Flood Reform Act – Incentives for communities to exceed minimum federal guidelines for floodplain management. Preferred Rating in non-SFHAs. 2004 – Increased premiums for properties with repetitive losses Legislative Amendments to NFIP 2012 Biggert-Waters Flood Reform Act mandates actuarially adequate premiums 2014 Homeowner Flood Insurance Affordability Act Rate increases capped at 15-25% Annual surcharge ($25 appl-$250) applied to flood policies. National Flood Insurance Reauthorization Act Must be reauthorized by Congress by December 20, 2024 NFIP Reinsurance Tower & FloodSmart Re Cat Bonds Layer Reinsurance & Cat Bonds 4 $11B xs 9B NFIP Reinsurance 3 $575M FloodSmart Re Cat Bond xs 8B 2 $9B xs 7B NFIP Reinsurance 2 $275M FloodSmart Re Cat Bond xs 7B 1 $450M FloodSmart Re Cat Bond xs 6B Current Key Flood Events Insured values in Atlantic and Gulf Coast counties increased by 80% since 2004 Evan Greenburg, CEO, Chubb: “Profound & disturbing evidence of climate change” The take-up rate in Special Flood Hazard Areas is 34% The take-up rate in the Asheville area in 2024 is 2% Flood rates not actuarially adequate What is a Flood? When normally dry land is inundated by water or mudflow affecting tw0 or more acres Caused by hurricanes, storm surge, broken dams or levees, clogged storm drainage system, rapid accumulation of rainfall or rapid melting of snowpack Probability of Flood Loss Homes in a special flood hazard area (SFHA) have 26% chance of being damaged by flood compared to a 9% chance of fire during a 30-year mortgage period. Flood zones based on probability of flooding: ○ Determined by flood maps compiled by FEMA and the Army ○ Corp of Engineers ○ High risk (A and V) ○ Moderate to Low Risk (B, C or X) Communities Must Apply for Participation in the NFIP To participate in the NFIP, community must adopt and enforce floodplain management ordinance ○ Floodplain is an area with a 1% probability of flooding each year (100-year event). Also referred to as a Special Flood Hazard Area (SFHA). Flood Insurance Rate Maps (FIRMS) are created to show SFHA and flood risk premium zones FEMA manages the NFIP and oversees floodplain control & mapping Who is Eligible for Flood Insurance Property in a participating community ○ Homeowner or tenant ○ Townhouse ○ Condo Commercial property –residential and non-residential ○ Property not eligible ○ Building over water ○ Building underground Is Flood Insurance Required? Homes and businesses in SFHA (Special Flood Hazard Area) with mortgages from federally regulated lenders are required to purchase Flood Insurance Persons residing in an SFHA area must purchase flood insurance to be eligible for federal disaster grants from FEMA How to Apply for Flood Insurance Property owners can apply for flood insurance through Insurance agency that places coverage with NFIP or places coverage with a Write Your Own Insurance Company reinsured 100% by NFIP What's Covered? Buildings insured on RC basis if single family, principal residence Personal Property insured on ACV basis Building and contents are insured separately Separate deductible for building and contents Damage caused by flood or mudslide Building including foundation, appliances, heating/AC equipment, permanently installed carpeting (except in basement), debris removal are covered. Personal Property above the basement level is covered if contents coverage is selected What Insurance Limits are Available The maximum limit for single-family homes is $250,000 ○ Building and $100,000 Contents. The maximum limit for commercial buildings is $500,000 ○ Building and $500,000 Contents What’s Not Covered Property outside of insured buildings Additional living expenses, Business Income Personal property, wallpaper, paint, and carpeting in basements and areas below the lowest elevated floor Flood Premiums are based on the following: Location of property (flood zone) Elevation of the building (slab, crawl space, pilings) Elevation of utilities Existence of a basement Number of floors Year of construction Deductible amount Coverage amount Loss history 30-Day Waiting Period Policy is effective after 30 days from date of application and payment of annual premium. Proposed Flood Insurance Changes Private market flood insurance to supplement federal flood In addition to excess flood and DIC (Difference in Conditions) ○ Higher limits & broader coverage are available ○ Adequate rates with credits for flood mitigation Lender acceptability of private market flood policy Additional flood capacity is available through: ○ Lloyd’s ○ Insurance-Linked Securities (Cat Bonds) ○ Reinsurance