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FIL350 - Chapter 6

Flood, Earthquake, and Specialty Forms

Goals of NFIP (National Flood Insurance Program) - Insurers exclude flood due to high risk - Alternative for disaster assistance - Encourage local land management practices to reduce future flood damage.
NFIP Eligibility - Special Flood Hazard Areas (SFHAs) are affected by 100-year flood - Base flood elevation (BFE) is the anticipated level of 100-yr flood - Relationship to BFE depicted in Flood Insurance Rate Maps (FIRMs) which helps determine premiums
Two NFIP programs 1. Emergency program - initial phase for a community. Rates are subsidized and amount of insurance is lower. Ned plan for flood management and FIRMs 2. Regular program (has higher limits of insurance)
FIRMs acronym FIRMs = Flood Insurance Rate Maps
NFIP General Property Form Coverages Covers most commercial buildings and business personal property against direct physical loss caused by flood. - Does not cover PP of others - Excludes sewer backup
NFIP acronym NFIP= National Flood Insurance Program
NFIP General Property Form vs. other property coverage forms - ACV basis and no option for replacement cost for businesses - No coinsurance - Only specific insurance, no blanket coverage - No coverage for loss of use (Business income, extra expense) - Excludes property in basement
NFIP General Property Form Coverages A-D Coverage A - Building Coverage B - Personal Property Coverage C - Other Coverages Coverage D - Increased cost of compliance
NFIP General Property Form Coverage A Coverage A - Building - Must be within building to be considered "building" - Fixtures, machinery and equipment must be listed
NFIP General Property Form Coverage B Coverage B - Personal Property - Can cover household PP or business PP, but not both - Property covered similar to a homeowner's or BPP
NFIP General Property Form Coverage C Coverage C - Other coverages - Not subject to deductible. Includes: - Debris removal - Loss avoidance measures (up to $1,000) - $10,000 of pollution damage caused by flood
NFIP General Property Form Coverage D Coverage D - Increased cost of compliance (needs coverage A) - Applies if building is "repetitive loss structure" (2 floods over last 10 yrs) - Related to flood management ordinances (provides up to $30k additional)
Differences between ISO and NFIP ISO has: - Replacement cost coverages for businesses - Broader property coverage regarding building types and limits - Additional loss exposures covered include loss of use and additional ordinance or law protection
ISO Flood Coverage Endorsement Limit - Policy limits can be higher than NFIP, but endorsement typically has separate limit - Often includes an occurrence limit and an annual aggregate limit - Ensuing losses are other perils caused by flood (flood leading to fire)
ISO Flood Coverage Endorsement Deductibles - Much higher than main policy - For SFHA businesses, deductible may be max limit of NFIP (up to $100k - very high)
ISO Flood Coverage Endorsement with Other Insurance - NFIP typically primary, endorsement is excess (even if no NFIP purchased) - If non-NFIP coverage, pro rata coverage
ISO Flood Coverage Endorsement Property Exclusions - Property in the open water unless scheduled - Boat houses on water - Bulkheads/retaining walls, piers/docks/wharves - Foundations and underground pipes/flues/drains ARE covered
ISO Flood Coverage Endorsement Other Exclusions - Ordinance or law - Water induced landslides - Sewer backup (unless flood induced) - 72-hr waiting period after inception - Debris removal does not include removal of earth/mud
Two options for Earthquake and Volcanic Eruption Coverage Endorsement 1. Same limit (and coinsurance) as underlying policy. Deductible is a % of policy limit. 2. Lower limit and no coinsurance. Deductible is a % of property value. Introduces aggregate annual deductible
Earthquake and Volcanic Eruption Coverage Endorsement Deductible differences 1. First option deductible is a % of policy limit 2. Second options deductible is a % of property value
Uses of Differences in Conditions (DIC) insurance - Used as open peril policy that fills gaps left by other coverages. - Similar to umbrella policy - Usually uses special form causes of loss
Advantages of Differences in Conditions (DIC) insurance - Cheaper alternative for covering flood/earthquake - No coinsurance - Easier to modify
Disadvantages of Differences in Conditions (DIC) insurance - Insurer coverage varies over time - Uncertain interpretation by courts if modified - More negotiation
Output policy features - Combines many property coverages into a single policy - Broader coverage for building and personal property
Highly Protected Risks (HPR) insurance features - Broader coverage - Insures higher risk control activities - Insured uses heavy loss control
Layered property insurance programs Utilize multiple insurers with multiple layers of coverage
Advantages of layered property insurance - Total premiums paid can be < for full amount of insurance - No coinsurance = flexible limits - Broader coverage - Increased access to insurers
Disadvantages of layered property insurance - Minimum premiums for each layer make cost savings questionable - Coordination of language between layers can cause claim disputes - Insurers prefer writing property and liability together - Top-layer volatility after catastrophes
Write Your Own (WYO) A program allowing private insurers to write flood insurance under the National Flood Insurance Program (NFIP)
Emergency program Initial phase of a community's participation in the National Flood Insurance Program in which property owners in flood areas can purchase limited amounts of insurance at subsidized rates
Regular program Second phase of the National Flood Insurance Program in which the community agrees to adopt flood-control and land-use restrictions and in which property owners purchase higher amounts of flood insurance than under the emergency program
General Property Form The version of the National Flood Insurance Program (NFIP) Standard Flood Insurance Policy that is used for insuring commercial buildings and contents
Residential Condominium Building Association Policy (RCBAP) A version of the NFIP Standard Policy that is used for insuring residential condominium buildings, as well as contents that are owned either by unit owners in common or by the condominium association solely.
Coinsurance An insurance-to-value provision in many property insurance policies providing that if the property is underinsured, the amount that an insurer will pay for a covered loss is reduced.
Increased Cost of Compliance (ICC) National Flood Insurance coverage that pays for compliance costs related to floodplain management for qualifying structures
Difference in conditions (DIC) policy [DIC Insurance] Policy that covers on an "all-risks" basis to fill gaps in the insured's commercial property coverage, especially gaps in flood ad earthquake coverage
Highly Protected risk (HPR) A large property whose construction meets high standards of risk mitigation and control characteristics and whose management maintains best practices loss control and risk mitigation techniques for the specific occupancy.
Layered Property Coverage Two or more property policies arranged in levels of coverage; the policies in the second or high levels provide coverage only when the loss exceeds the coverage afforded by the lower-level policies
Attachment point The dollar amount above which the reinsurer responds to losses
Created by: FIL350
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