1
1
Flood Compliance
by the Case A CASE STUDY APPROACH FOR LENDERS
Presented by:
Here’s our
agenda for today
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Topic 1: Private Flood Insurance
Topic 2: Force Placement
Topic 3: Condo Conundrum
Topic 4: Escrows
Topic 5: Detached Structures Exemption
Topic 6: Insurable Value
Topic 7: Resources
2
Topic 1
PRIVATE FLOOD INSURANCE 4
6/1/2018
Ask The Expert
Q. How does a bank ensure adequacy to regulations
when presented with a private flood policy?
Q. What are the safety & soundness risks faced when
NFIP limits on commercial insurance are $500K but a
building has insurable value of $2M? Should banks be
requiring more flood insurance?
Private Flood Insurance
Private Flood Questions
5
3
History of Private Flood Insurance:
Suggested “guidelines” appeared in Mandatory Purchase booklet for years
March 2012: FEMA clarified its position (advisory, not regulatory)
July 2012: BW-12 enacted (Sec. 100239 – defined components)
October 2013: Joint Notice of Proposed Rulemaking (Safe harbors)
March 2014: HFIAA enacted – No private flood insurance amendment
June 25, 2015: H.R. 2901 & S. 1679 introduced in Congress
November 7, 2016: Joint Notice of Proposed Rulemaking
Loans in Areas Have Special Flood Hazards - Private Flood Insurance
Federal Register publication date
7
Private Flood Insurance
Private Flood
Insurance
Talking Points
NFIP set to expire 9/30/17 – requires reauthorization
Flood Insurance Market Parity and Modernization Act (Private Flood Insurance Market Development Act of 2017)
H.R. 2901 passed the House – 4/28/16
S. 1679 - received in Senate – 5/9/16
Proposes that Federal Flood Insurance and Private Flood Insurance are equal remedies for mandatory purchase of flood insurance
Establishes that any period of continuous coverage by private flood insurance meets the standard and is considered a period of continuous coverage for any statutory, regulatory or administrative continuous coverage requirement
8
Private Flood Insurance
Private Flood
Insurance
Talking Points
(H.R. 1422 – 3/8/17)
(S. 563 – 3/8/17)
(Extended to 7/31/18)
4
Proposes requirements regarding financial strength of private flood insurance companies …
That do not affect or conflict with any state law, regulation or procedure concerning the regulation of the business of insurance
Environment favorable to private flood insurance market Admitted insurance carriers vs. Non-admitted carriers
Resolving the Confusion About Admitted and Non-Admitted Carriers
9
Resolving the Confusion About ‘Admitted’ and ‘Non-Admitted’ Carriers
Private Flood Insurance
Private Flood
Insurance
Talking Points
Examples of other types of flood policies/coverage
Standalone Flood Policy
Admitted carrier
Non-admitted carrier
Difference in Condition
Policy (DIC)
Commercial Property Policy
w/flood endorsement
Mobile-Home policies
All-Risk Builder’s Risk
Policy
Manuscript Policy
Self-insurance Coverage
Excess Flood Policy
Non-NFIP Flood Coverage
10
Got You Confused?
5
Loans in Areas Having Special Flood Hazards – Private Flood Insurance (Joint Notice of Proposed Rulemaking)
A. Definitions
Mutual Aid Society
Private Flood Insurance
“At least as broad as” (1/2 dozen items to research – specific, not simple)
B. Requirement to purchase flood insurance
Meets statutory definition of private flood insurance
Meets the mandatory purchase requirement
C. Compliance aid for mandatory purchase
Meets definition of private flood insurance if: Policy has written summary describing how it meets definition
Lender verification in writing that policy meets definition
Endorsement/provision within policy that states definition met
11
Private Flood Insurance
Private Flood
Insurance
Talking Points
Loans in Areas Having Special Flood Hazards – Private Flood Insurance (Joint Notice of Proposed Rulemaking)
D. Discretionary Acceptance
Authorized insurer
Covers lender and borrower as loss payees
Cancellation for same reasons as SFIP
Coverage as broad as or similar to SFIP
Exception for mutual aid societies
Discretionary acceptance for non-residential property
12
Private Flood Insurance
Private Flood
Insurance
Talking Points
6
13
Does your financial institution have a set of written
procedures that outline which private flood
insurance policies are acceptable?
a. Yes
b. No
c. Hoping to have one soon
Poll Question #1
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6/1/2018 14
Ask The Expert
Non-NFIP Flood Insurance
Q: In the absence of regulations, how does a lender
determine whether a private flood insurance policy is
acceptable?
Private Flood Questions
7
Original private flood insurance criteria:
Licensure Licensed, admitted or approved by State insurance regulator
Surplus lines recognition (non-residential commercial) Carrier should be recognized, or not disapproved, as a surplus lines
carrier
Requirement of 45-day cancellation/non-renewal notice Policy should be as restrictive as SFIP’s cancellation provisions
Breadth of policy coverage
Similar mortgage clause
Legal recourse 15
Private Flood Insurance
Private Flood
Insurance
Talking Points
Resources for vetting private market flood insurance carriers
Department of insurance websites
Demo 1: Ohio Department of Insurance
Demo 2: Florida Office of Insurance Regulation
Demo 3: A.M. Best Rating Service by Company
Demo 4: Best’s Financial Strength Rating Guide 16
Private Flood Insurance
Private Flood
Insurance
Talking Points
8
9
10
11
12
Resources for vetting private market flood insurance carriers
Department of insurance websites
Demo 1: Ohio Department of Insurance
Demo 2: Florida Office of Insurance Regulation
Demo 3: A.M. Best Rating Service by Company
Demo 4: Best’s Financial Strength Rating Guide 25
Private Flood Insurance
Private Flood
Insurance
Talking Points
13
Resources for vetting private market flood insurance carriers
Department of insurance websites
Demo 1: Ohio Department of Insurance
Demo 2: Florida Office of Insurance Regulation
Demo 3: A.M. Best Rating Service by Company
Demo 4: Best’s Financial Strength Rating Guide 28
Private Flood Insurance
Private Flood
Insurance
Talking Points
14
A.M. Best Rating Guide
A.M. Best Rating Guide
15
Resources for vetting private market flood insurance carriers
Department of insurance websites
Demo 1: Ohio Department of Insurance
Demo 2: Florida Office of Insurance Regulation
Demo 3: A.M. Best Rating Service by Company
Demo 4: Best’s Financial Strength Rating Guide 32
Private Flood Insurance
Private Flood
Insurance
Talking Points
16
34
6/1/2018 34
Ask The Expert
Non-NFIP Flood Insurance
Q: What are some considerations for a borrower when
switching to private flood insurance?
Private Flood Questions
17
Pros:
In competitive market, coverage may be less expensive
Coverage may be broader
Available coverage limits may be higher
Greater flexibility with deductibles.
Cons:
Private market may not always be price competitive
Possible loss of rating subsidy if borrower (insured) returns to NFIP for coverage
Private market capacity and availability may vary with market conditions
35
Private Flood Insurance
Private Flood
Insurance
Talking Points
36 CASE FILE
Topic 1
18
1. Reform legislation encourages
expansion of private flood insurance
2. FEMA guidance advisory, not
regulatory
3. Legislators and regulators are re-
evaluating their approaches to
private flood insurance
37 CASE FILE NOTES
Topic 2
FORCE PLACEMENT 38
19
6/1/2018
Ask The Expert
I am confused about when I can force place flood insurance and when I have
to send the notice. Seems like every time I think I have it down, something
else comes along that seems to change what I think I know.
When I determine that my borrower’s flood coverage has lapsed and I send
out the 45-day notice, can I force place the coverage right away so there’s not
any interruption in the coverage?
Force Placement Question
Force Placement Question
39
Force Placement Overview
Lender determines at any time during the life of the loan that property securing the loan is located in SFHA;
Flood insurance is available;
Flood insurance is inadequate or does not exist; and
After required notice, borrower fails to purchase appropriate amount of coverage.
40
Send 45 day
letter
Allow time for
borrower to
purchase flood
insurance
Force
Place?
20
Sec. 100244 – Force Placement – Final Rule
Required 45-day notice must be sent:
Upon receipt of a notice of cancellation or expiration from an
insurance provider or internal flood monitoring system
When lender learns a property is now a designated loan due to a
map change
Impact of Biggert-Waters Reform Act
41
FINAL RULE
Clarifies that the
required notice must be
sent following the date
of lapse or insufficient
coverage notification.
Only courtesy notice
prior.
Sec. 100244 – Force Placement
Premium and fees a lender or servicer may charge include:
Premium or fees incurred for coverage
Beginning on the date flood insurance coverage lapsed or,
Did not provide sufficient coverage amount
Impact of Biggert-Waters Reform Act
42
FINAL RULE
Lapsed date = policy
expiration date or
effective date the policy
is cancelled
21
Sec. 100244 – Force Placement
Final Rule clarifies a lender or servicer may force place coverage:
Any time during 45-day notice period
Do not have to wait 45 days after providing notice to force place
Force placing prior to expiration of 45-day notice period may create
additional work effort
Impact of Biggert-Waters Reform Act
43
NOTE
There can be a
distinction made
between when a policy
is put in place and when
it is effective. Consider
force placing effective
the day after expiration.
Sec. 100244 – Force Placement
Requires lender or servicer within 30 days of:
Receiving confirmation of borrower’s coverage
Notify insurer to terminate force-place insurance
Refund all force-placed premium and fees paid by borrower
During any overlap in coverage
Impact of Biggert-Waters Reform Act
44
FINAL RULE
Lender required to
“notify” insurer to
cancel.
22
Sec. 100244 – Force Placement
Impact of Biggert-Waters Reform Act
45
Requires lender or servicer to:
Accept borrower’s existing policy declarations page as confirmation
Declarations page must include:
Identity/Contact information for insurance company or agent
Existing policy number
Lender may accept alternative evidence
FINAL RULE
Lender responsible for
determining adequacy of
coverage. If
inadequate, notify
borrower.
46 CASE FILE
Topic 2
23
1. Can charge force place premium
and fees from date of lapse
2. Date of lapse equals the policy’s
expiration date or the effective date
the policy is cancelled
3. Notify insurer to terminate force
placed policy within 30 days of
confirmation of borrower’s existing
flood insurance coverage
47 CASE FILE NOTES
6/1/2018
Ask The Expert
When I force place flood coverage for one of my borrowers, is that considered
a MIRE event? I have heard conflicting opinions on this topic.
Force Placement Question
Force Placement Question
48
24
Three Categories – Force Place as MIRE Event
49
Category 1
• Premium/fees added to UPB • Insurance amount must include FP premium and fees
• Triggering event depends on loan contract
Category 2
• Premium/fees added to an unsecured account • If FP is in separate, unsecured account:
• Not an increase
• Not a triggering event
Category 3
• Premium/fees billed to borrower • Not an increase/triggering event
• If borrower fails to pay, see Categories 1 & 2
50
Single family dwelling: • $350,000 insurable value
• $200,000 loan amount
• Fails to renew flood policy
• Need to force place
• Adding premium/fees to UPB
Cost of FP flood policy: $2,000
Equals $1 per $100 coverage limit
$200,0(00) X 1.00 = $2,000
UPB increases to $202,000
Amount of FP = $200,000
$2,0(00) X 1.00 = $20
UPB increases to $202,020
Amount of FP = $202,000
$100 X 1.00 = $1
UPB increases to $202,021
Amount of FP = $202,100
25
Topic 3
CONDO CONUNDRUM 51
6/1/2018
Ask The Expert
I found your training very informative. My only complaint it was not long enough.
I do have a question on Condo insurance. We have a Condo policy RCBAP that has
$500,000 in coverage and has four units.
We were dividing the $500,000 by 4 = $125,000 per unit.
The customer’s loan has a balance of $131,000. We are requiring the customer to
obtain his own policy for $6,000 to cover the balance. Is that correct?
Condo Conundrum – Part 1
Condo Conundrum Question
52
26
6/1/2018
Ask The Expert
I have spoken to you before at the Minnesota Bankers Association Advanced
Compliance Workshops. I hope you can help answer a question for me.
We have a loan secured by a condo in Florida.
The RCV on the building is $35,249,400, but the RCBAP policy is written at a limit of
$28,199,500, which is 80% of RCV. Policy says 100% Replacement Cost. It appears this
is ok per the FEMA guidelines.
However, there are 126 units, so this is flood coverage of $223,805.55 per unit.
We have a loan for greater than $250,000 and the unit value is more than $250,000.
My Question: Are we required to have $250,000 of flood insurance coverage? If so,
this means the borrower will have to purchase a policy for the difference of $26,194.45.
Condo Conundrum – Part 2
Condo Condundrum Question
53
RCBAP co-insurance clause/penalty
Avoid if insured to max limit, or
80% of RCV at time of loss
At 80%, building is 20% uninsured
Coverage limit division…
Assumes all units are identical
Discuss 4-unit condo building
Discuss 126-unit condo building 54
Condo Conundrum
Condo
Coverage
Talking Points
27
4-unit residential condominium building
3 units identical in size and value
4th unit is two floors - double size and value of other 3 units
126-unit residential condominium building
Building has 1, 2 and 3 bedroom units
All different sizes – all 2 bedrooms not the same size
Cookie cutter approach – all units equal
Approach used in Q. 28-29 Interagency Q&As
May look to percentage of ownership – see assessments
55
Condo Conundrum
Condo
Coverage
Talking Points
56
Unit 2
Unit 1
Unit 3
Unit 4
Unit 1 = 20% Ownership
Unit 2 = 20% Ownership
Unit 3 = 20% Ownership
Unit 4 = 40% Ownership
$500,000 Coverage Limit
Unit 4
$500K X .40 = $200,000
vs.
$500K X .25 = $125,000
4-Unit Residential
Condo Building
28
Topic 4
ESCROWS 58
Revised escrow provisions effective 1/1/16
Applies to residential improved real estate with a triggering event only
Escrow notification part of notice to borrower
Notice of Special Flood Hazards updated
Small lender and loan exceptions to escrow requirement
59
Reform Legislation – Escrows
Revised Escrow
Requirements
Mandatory escrows in place since National Flood Insurance Reform Act of 1994.
29
60
Which statement best describes your knowledge of
the lending institution where you are employed?
a. I know it definitely has less than $1 billion in assets
b. I know it definitely has more than $1 billion in assets
c. I am not sure if it has < or > $1 billion in assets
d. By next year it will have more than $1 billion in assets
e. I do not work for a lending institution
Poll Question #2
61
6/1/2018 61
Ask The Expert
Escrows
Q: If a small lender requires the escrow of taxes or
insurance premiums only under certain conditions or for
only a portion of the loan term, is it considered to have a
policy of consistently and uniformly requiring escrows?
Escrow Question
30
Small Lender Exception
62
Less than $1 billion in assets if on or before July 6, 2012:
Not required under Federal or State law to:
Deposit taxes, insurance premiums, fees, or any other charges in an escrow account
for the entire term of the loan secured by residential improved real estate or a mobile
home and:
Did not have a policy of consistently and uniformly requiring:
The deposit of taxes, insurance premiums, fees, or any other charges in an escrow
account for any loans secured by residential improved real estate or a mobile home.
Less than $1 billion in assets:
Either of prior two calendar years as of 12/31:
Less than $1 billion on 12/31/16
More than $1 billion on 12/31/17
Small lender exception applies on 1/1/18
If still more than $1billion on 12/31/18:
Lose small lender exception (2 prior years > $1B)
Change in Status:
More than $1 billion in assets (2 prior years):
Effective July 1
First calendar year of changed status
Must escrow flood insurance premium and fees
Designated loans:
Made, Increase, Renewed or Extended
On or after July1
1
2
3
63
6/1/2018 63
Ask The Expert
Escrows
Q: If a small lender requires the escrow of taxes or
insurance premiums only under certain conditions or for
only a portion of the loan term, is it considered to have a
policy of consistently and uniformly requiring escrows?
Escrow Question
31
Does institution pass all three tests for small exception?
Does institution have total assets < $1 billion in one or both of two prior calendar years? (Key Date: 12/31)
Was not required as of BW-12 date of enactment (7/6/12) under federal or state law to deposit taxes, insurance premiums, fees, etc. into an escrow account “for the entire term” of any loan secured by residential improved real estate/mobile home. (HPML?)
Did not have a policy of consistently and uniformly requiring deposit of taxes, premiums, fees, etc. into an escrow account for any loans secured… (PMI/taxes above LTV threshold?)
64
Escrows
Escrow
Talking Points
Escrows: Final Joint Regulatory Guidance
Six exceptions to escrow requirement:
1. Loan primarily for business, commercial or agricultural purpose
2. Subordinate liens when flood insurance is provided at time of loan
origination
3. Condominiums, cooperatives, homeowner associations, etc.
4. Home equity lines of credit
5. Non-performing loans (90 or more days past due)
6. Short-term loans
65
Reform Legislation – Escrows
EXCEPTIONS
32
Escrow Exceptions: Final Joint Regulatory Guidance
Loan primarily for business, commercial or agricultural purpose:
Residential improved real estate or mobile home
Portion of collateral
Escrow requirement does not apply
66
Reform Legislation – Escrows
EXCEPTION
1
Escrow Exceptions: Final Joint Regulatory Guidance
Subordinate liens when flood insurance is provided at time of loan
origination:
No requirement to monitor lien position prospectively
If lender determines the exception no longer applies
Receives notice senior lien paid off
Determines at subsequent triggering event
Must begin escrowing premium and fees
67
Reform Legislation – Escrows
EXCEPTION
2
33
Escrow Exceptions: Final Joint Regulatory Guidance
Condominiums, cooperatives, homeowner associations, etc.:
Flood insurance meets mandatory purchase requirements
Is provided and premium paid for by:
Condominium Association
Cooperative
Homeowner Association or other applicable group
Escrows required if:
Borrower purchases own coverage
68
Reform Legislation – Escrows
EXCEPTION
3
Escrow Exceptions: Final Joint Regulatory Guidance
Home equity lines of credit:
Statute does not include any exclusion to the HELOC exception
Fully drawn HELOCs included
Escrows are not required
69
Reform Legislation – Escrows
EXCEPTION
4
34
Escrow Exceptions: Final Joint Regulatory Guidance
Non-performing loans (90 or more days past due):
Remains non-performing unless:
Permanently modified
Entire past due amount collected or discharged
Principal
Accrued interest
Penalty interest
70
Reform Legislation – Escrows
EXCEPTION
5
Escrow Exceptions: Final Joint Regulatory Guidance
Short-term loans:
Must be no longer than 12 months to qualify
Extensions of 12 month or less
Exception applies
Triggering event
71
Reform Legislation – Escrows
EXCEPTION
6
35
Escrows: Final Joint Regulatory Guidance
Escrow Notice
Mail or deliver notice to borrower that escrow of premiums and fees may be required
Provide the escrow notice as part of Notice of Special Flood Hazards and Availability of Federal Disaster Relief
Sample notice provided by regulators in Appendix A of bulletin
72
Reform Legislation – Escrows
Escrow
Talking Points
Escrows: Final Joint Regulatory Guidance
Escrow Notice Clarification
Notice required for “excepted” loans
May lose exception during term of loan
Will be informed escrows “may” be required
73
Reform Legislation – Escrows
Escrow
Talking Points
Federal law may require a lender or its servicer to escrow all premiums and fees for
flood insurance that covers any residential building or mobile home securing a loan
that is located in an area with special flood hazards. If your lender notifies you that an
escrow account is required for your loan, then you must pay your flood insurance
premiums and fees to the lender or its servicer with the same frequency as you make
loan payments for the duration of your loan.
36
Option to Escrow (01/16)
74
Required lenders to “offer and make available” to borrower the option to escrow
• Loans or lenders “excepted” as of 01/01/16
• Loans already escrowing for flood insurance
Option does not apply to:
Deliver notice to borrowers by June 30, 2016
• September 30th
• First calendar year of status change
Change of status lenders:
Can be separate notice or added to another disclosure, eg. Periodic statements
When requested, begin escrow as soon as ‘reasonably practicable’
75
6/1/2018 75
Ask The Expert
Escrows
Q: Do map changes trigger the mandatory escrow rules?
Don’t confuse mandatory purchase with
mandatory escrow
Need tripwire for escrow
Escrow Question
37
76
6/1/2018 76
Ask The Expert
Escrows
Q: If you have previously waived escrow for taxes and
hazard insurance, do you still have to escrow for flood
insurance? Can flood escrow be waived?
If you are required to escrow for flood under the
revised escrow rule, then you must escrow for
flood regardless of your decision on other
escrows.
Escrow Question
77 CASE FILE
Topic 4
38
1. Escrows affect residential
improved real estate or mobile
homes with triggering event
2. A small lender exception applies
to regulated lending institutions
with total assets < $1 billion
3. Six loan exceptions to the
escrow requirement exist
78 CASE FILE NOTES
Topic 5
DETACHED STRUCTURES 79
39
6/1/2018
Ask The Expert
Detached Structures
I am hoping you can answer a question for me. We attended a webinar and
were given information concerning exclusion from the mandatory purchase
requirement. It stated “The act authorizes the exclusion of detached structures
that are not used for residential purposes from the mandatory purchase of flood
insurance requirement.” We currently have a loan that has the dwelling in zone
“X” but the barn is in zone “AE”.
Do we have to have flood insurance for the barn?
Detached Structures Question
80
Profile of Issue:
HFIAA allows mandatory purchase exemption for certain detached
structures
Three Components Required:
Applies to Residential Property
Detached from primary residential structure
Does not serve as a residence
81
Detached Structures Exemption - HFIAA
Detached
Structures
Talking Points
“(3) DETACHED STRUCTURES. –Notwithstanding any other provision of this
section, flood insurance shall not be required, in the case of any residential
property, for any structure that is a part of such property but is detached from
the primary residential structure of such property and does not serve as a
residence.”
40
Final Joint Regulatory Guidance:
Regulators agree exemption became effective upon enactment.
Exemption addresses concerns on low-value structures
Provides discretionary authority to require coverage
Notice of Special Flood Hazards amended
82
Detached Structures Exemption - HFIAA
Detached
Structures
Talking Points
“Although you may not be required to maintain flood insurance on all structures, you may still wish to do so, and your mortgage lender may still require you to do so to protect the collateral securing the mortgage. If you choose not to maintain flood insurance on a structure and it floods, you are responsible for all flood losses relating to the structure.”
3 Components – Detached Structures Exemption
83
Applies to a residential property
Purpose of loan is immaterial when residence secures a loan
Broadly defined to include any residential building
A structure that is part of a residential property:
Refers to a property used primarily for personal, family or household purposes
Not commercial, agricultural or other business use
Applies to a “detached” structure
Detached from the primary residential structure
Detached is defined as a building that stands alone
Not joined by any structural connection to the residential structure
Does not serve as a residence
No single bright line test; Focus on structure’s intended use
Rely on good faith determination of lender
Could serve as residence if it generally includes sleeping, bathroom or
kitchen facilities
1
2
3
41
Final Joint Regulatory Guidance:
Further Clarification on “serves as a residence”:
Detached structures can vary greatly
Sleeping, bathroom and kitchen – all three not necessary to
“serve as a residence”
No duty to monitor status of detached structure
Must re-examine on future triggering event
Send borrower notice if lender determines building becomes
subject to mandatory purchase
84
Detached Structures Exemption - HFIAA
Detached
Structures
Talking Points
85
The e-mailer writes that the dwelling is in Zone X but the barn
is in Zone AE. Can the barn be excluded from the mandatory
purchase requirement?
a. Yes, the dwelling is in Zone X; no flood insurance is required
b. No, buildings in Zone AE cannot use the exemption
c. Yes, the loan meets all three required components of the
exemption
d. No, only residential buildings with sleeping, kitchen and
bathroom facilities can use the exemption
e. I don’t have enough information
Poll Question #3
42
86
6/1/2018 86
Ask The Expert
Detached Structures Exemption
Q: If a commercial loan is secured by a personal guaranty
provided by the principal owner of a commercial entity, with
a mortgage on his or her residence, may a detached
structure on the residential property be eligible for the
exemption?
Detached Structures Question
Exemption applies regardless of the purpose of the loan*
Just so long as a residential property is secured
Affordability issues are the same
Exemption only a remedy for residential properties and not commercial, business or agricultural
Homeowner Flood Insurance Affordability Act not Business or Farm owner
*NOTE: Escrow requirement – only consumer loans
87
Detached Structures Exemption
Detached
Structures
Talking Points
43
88
6/1/2018 88
Ask The Expert
Detached Structures Exemption
Q: If one of our borrowers currently has a flood policy on a
detached structure that meets the exemption’s
requirements, can we cancel our requirement for flood
insurance? Can our borrower cancel their policy and get a
refund?
Detached Structures Question
Borrower is no longer required by statute to have flood insurance on a building(s) meeting the exemption’s requirements
Lender may rescind its flood insurance mandate
For safety and soundness, lender may want to continue coverage mandate on higher valued detached structures
NFIP policies can be cancelled mid-term with cancellation effective the date the cancellation request and supporting documentation are received by insurance carrier
Documentation: Signed statement from policyholder that policy no longer required by lender for a “detached structure”
89
Detached Structures Exemption
Detached
Structures
Talking Points
44
90 CASE FILE
Topic 5
1. Applies to property used
primarily for personal, family or
household purposes.
2. Lenders can exercise discretion
in their use of the exemption.
3. To be exempted the detached
structure may not serve as a
residence.
91 CASE FILE NOTES
45
Topic 6
INSURABLE VALUE 92
93
What do you most often use to determine Insurable
Value at your lending institution?
a. We make the insurance agent/carrier determine it.
b. We take the coverage amount from the hazard policy.
c. We use an appraised value.
d. We use a residential or commercial cost estimator.
e. We use a method not listed here.
Poll Question #4
46
Calculating Insurable Value
94
Calculating Insurable Value
98
47
Replacement Cost Value
Cost to repair or replace a building
Material of similar kind and quality
No deduction for depreciation
RCV does not include land values
RCV is not “market value”
RCV vs. ACV
99 Calculating Insurable Value
Actual Cash Value
Cost to replace an insured item of
property at time of loss
Less the value of its physical
depreciation
Based on age, wear and tear
Replacement cost less
depreciation
RCV vs. ACV
100 Calculating Insurable value
48
Types of Policies
101 Which to use? What’s the purpose of the structure?
Applies to:
Residential building
for 1 to 4 families
Also applies to:
Individual condo units
Manufactured homes
Renters (for contents)
102
Dwelling Form
49
Replacement Cost Loss Settlement
Building Coverage Only
Single Family Dwellings
Principal Residence
Properly Insured to Value
80% of RCV
Max Limit Available
103 Dwelling Form
Actual Cash Value Loss Settlement
2 – 4 Family Dwellings
Mobile Homes
<16 ft wide and 600 sq. ft.
Single Family
Not insured to value
Not principal residence
Contents
Detached Garage
10% extension
104 Dwelling Form
50
Actual Cash Value Loss Settlement
Residential (More than 4 families)
Non-residential buildings
Office buildings
Schools, churches
Farm buildings
Industrial buildings
Warehouses
Hotels < 6 months
Mixed-use buildings – less than
75% residential
105 General Property Form
Replacement Cost Loss Settlement**
Replacement Cost Loss
Settlement**
Buildings owned by condo
associations
75% of floor area residential
High rise buildings
Low rise buildings
Townhouse/Rowhouse
Detached single family condos
106 Residential Condominium Building Association Policy
** Subject to co-insurance penalty if not properly insured to value.
51
Replacement Cost Value (RCV)
107
Single Family Dwelling
Principal Residence
Insured to Value
Residential Condo Buildings
RCBAP Coverage Form
Insured to Value
Replacement Cost Loss Settlement Summary
RCV
Actual Cash Value (ACV)
108
Everything
Else
Actual Cash Value Loss Settlement Summary
52
Appraisal based on cost-value
approach
Reconstruction cost
Reconstruction less depreciation
Insurable Value
109
Final Answer
Insurance value approaches/methods
Final Answer
Appraisal based on cost-value
approach
Construction-cost calculation
Residential cost estimators
Commercial cost estimators
“Google” on Internet
Industry leader obvious
Replacement cost calculations
Depreciated values
Insurable Value
110 Insurance value approaches/methods
53
Final Answer
Appraisal based on cost-value
approach
Construction-cost calculation
Insurable value used in hazard
policy
Insurable Value
111 Insurance value approaches/methods
Final Answer
Appraisal based on cost-value
approach
Construction-cost calculation
Insurable value used in hazard
policy
Any other reasonable approach
that can be supported
Insurable Value
112 Insurance value approaches/methods
54
113 CASE FILE
Topic
6
1. No one single solution to
calculating insurable value.
2. NFIP losses are typically settled on
either an Actual Cash Value or
Replacement Cost Value basis.
3. Regulators have defined a series
of approaches to defining insurable
value.
114 CASE FILE NOTES
55
RESOURCES 124
Topic 7
www.fema.gov/national-flood-insurance-program
National Flood Insurance Program Home Page
125
56
NFIP Flood Insurance Manual
Access the NFIP Flood
Insurance Manual:
Online at the Flood
Insurance Library: http://www.fema.gov/flood-insurance-manual
126
Links to Final Rule
Loans in Areas Having Special Flood Hazards (June 2015)
http://www.occ.gov/news-issuances/news-releases/2015/nr-ia-
2015-89a.pdf
127
57
Links to Interagency Q&As
Interagency Q & As Regarding Flood Insurance (July 2009)
http://edocket.access.gpo.gov/2009/pdf/E9-17129.pdf
Interagency Q & As Regarding Flood Insurance (October 2011)
http://www.gpo.gov/fdsys/pkg/FR-2011-10-17/pdf/2011-
26749.pdf
128
Proposed Rule: Private Flood Insurance
129
Federal Register Publication: Click Here
58
www.msc.fema.gov
Visit the Map Service Center
130
Evaluations - Online
131
All attendees will be receiving an email with a link to a survey
and feedback form. Please take time to complete and help
us improve our training effort!
Presented by:
59
Training Information
132
Rich Slevin [email protected]
Mike Moye [email protected]
Melanie Graham [email protected]
Rich Waalkes [email protected]
Aaron Montanez [email protected]
Like us on Facebook at:
www.facebook.com/floodcomplianceforum
133 Any views or opinions presented in this webinar are solely those of the speakers. They do not represent
the Federal Emergency Management Agency (FEMA), The National Flood Insurance Program (NFIP),
any Federal Entity for Lending Regulation or Government Sponsored Enterprise (GSE).
Always consult your regulatory entity for definitive guidance.