As many readers know, the Biggert-Waters Flood Reform Act of
2012 (BW12) has introduced a myriad of changes to the National
Flood Insurance Program (NFIP). While actuarial integrity may be
a new concept to those administering the NFIP, insurance
industry veterans understand that the changes being introduced
are long overdue. For the first time since the formation of the
NFIP in 1968, the rates that will be charged for homes most
vulnerable to flood loss will finally begin to reflect the
actual risk. As with any significant insurance change, the
mainstream media have created much confusion over BW12, and
grandstanding politicians pretended to try to forestall
implementation this past October 1. The fact that their ploy to
delay the implementation of BW12 occurred on the same day the
federal government was shut down was an irony lost on no one.
With all the hoopla over BW12, it seems our industry has
missed the opportunity to provide consumers with the simple
explanation about what to expect and why the changes are
necessary. To provide those we serve with a summary that offers
real perspective, try offering this: BW12 was passed because the
historic rate subsidies provided to those who live closest to
the water, especially those in seasonal homes and homes that are
poorly elevated, have caused the NFIP to become fiscally
insolvent. By introducing actuarially based premiums for those
risks that are most vulnerable to loss, BW12 will provide the
program an opportunity to become fiscally viable so that it can
provide flood protection for all.
While there are many additional details associated with BW12,
this summary helps frame for consumers an important aspect
missing from many news reports: the
only substantial cost increases being introduced will impact
only the 20 percent of the policyholders who have been paying
premiums well below those required to offset their collective
losses. As personal risk management professionals, we
should focus our efforts on helping those consumers who are
experiencing the greatest impact to examine the strategies that
are available to help them manage their rising insurance costs.
In lieu of the previously subsidized rate structure that has
jeopardized the future of the NFIP, those seeking lower flood
insurance costs will finally need to take the steps needed to
improve the risk profile of their residence. With some careful
guidance, we can help them to do so.
Solution, Meet Problem
During these early days of BW12 implementation, lawmakers,
and even a few in our industry, have been asking the few private
insurers offering flood coverage if they might be willing to
insure high-risk residences at rates the NFIP has finally
determined to be inadequate. While rising premiums are surely a
problem for many living in high-risk areas, who can possibly
think asking private insurers to provide coverage at rates
proven to be highly deficient is a viable solution? The private
insurance industry already has a process that rewards
policyholders with lower costs when they take the steps needed
to improve their risk profile. Let's agree to shift our
conversations to help consumers understand that the cost of
insurance does and should reflect the characteristics of the
risk being insured and that, to achieve lower costs, they must
first take steps to reduce the risk of loss.
NFIP Regulations and Building Codes have long required that
any residential building constructed in Flood Zone A have the
lowest floor elevated to or above the base flood elevation
(BFE). Enclosed areas are permitted under elevated buildings
provided that they meet certain use restrictions and
construction requirements, such as the installation of flood
vents to allow for the automatic entry and exit of floodwaters.
Why have so many home owners long ignored this "requirement"?
With cost subsidies available to those who ignored it, there was
simply not enough financial pain prior to BW12 to compel home
owners to comply with this important requirement.
With the passage of BW12 and the
removal of taxpayer-subsidized premiums, the long-prescribed
solution of "wet floodproofing" has finally met a problem many
home owners will now care about solving: skyrocketing
flood premiums! I wonder how many readers have performed an
Internet search for the term "wet floodproofing." I know that,
prior to the passage of BW12, I had not.
Wet Floodproofing: Control the Severity Risk
Research reveals the greatest risk of large loss to a home
from a flooding event is caused by
foundation collapse. Knowing this, actuaries have
developed higher rates for those homes at risk of foundation
collapse and lower rates for homes that have measures in place
to reduce this risk. As it concerns loss frequency, it is
contemplated that homes in a high-risk flood zone will
experience flood damage at some point. For homes where the risk
of a flood is high, the most important question becomes
how severe the damage will be.
Since it is nearly impossible to protect homes located in
high-risk flood zones from ever sustaining a loss, efforts
should instead be focused on helping at-risk home owners to
examine the precautions they can take to reduce the severity of
the damage their home will sustain from a flooding event.
Wet floodproofing is most easily achieved by installing
engineered flood openings, more commonly referred to as flood
vents. While allowing floodwater to enter a home seems
counterintuitive, engineers have long known that allowing some
surface water to enter a house balances the hydrostatic pressure
inside and outside of the house, greatly decreasing the amount
of damage to the foundation. Hydrostatic loads occur when water
comes into contact with a building. There are two different
forces: lateral forces, which act as pressure on the sidewalls,
and vertical forces, which act as buoyancy, lifting the
structure up. Rather than preventing water from entering a home,
flood vents allow the floodwater to
enter and exit the enclosed area. Allowing floodwater to
enter and exit relieves the hydrostatic pressure by allowing for
the equalization of water on both sides of a wall.
I encourage readers to perform an Internet search for the
term "hydrostatic pressure." Add "flood damage" to the same
search, and you will access volumes of information that explains
this risk. Although fewer sites will reveal the solutions that
are available to manage this risk, the following link is to one
enterprising company that offers a wealth of information for any
insurance professional seeking insights on the broad topic of
helping consumers better protect their homes from a flood:
www.smartvent.com.
For those who are curious to learn more of NFIP regulations
concerning the requirement for openings in below-BFE foundation
walls and walls of enclosures for buildings located in Zones A,
AE, A1–A30, AR, AO, and AH, the following link will direct you
to Federal Emergency Management Agency (FEMA) Technical Bulletin
1–08:
www.fema.gov/media-library/assets/documents/2644?id=1579.
Offer Proof Sources
The Internet is full of information documenting how home
owners across the country have embraced strategies to better
protect their homes from flood damage, while also lowering their
flood insurance costs. Providing those we serve with third-party
case studies, testimonials, and video evidence to document the
benefits of wet floodproofing can be impactful. I encourage
readers to either perform an Internet search or visit these
examples:
All Vents Are Not Equal
While many homes have air vents installed, common air vents
are not designed to reduce flood damage and do not comply with
NFIP requirements, even if an improperly completed elevation
certificate indicates otherwise. ICC-ES Evaluated engineered
openings should be listed as the first flood opening option and
should be seen as the preferred method as these openings have
been designed, tested, and certified as flood openings. Unique
(project-specific) engineered openings should be listed as the
second-best option for meeting the flood opening requirements.
These openings are designed for a specific building and come
with an original engineered opening certificate with the backing
from a licensed design professional. Non-engineered openings
should be listed third and regarded as a flawed alternative to
the flood opening requirements. These openings are not designed
as flood openings and do little to mitigate flood damage, while
leaving the liability for compliance on the surveyor and
construction official. See
vents that do not comply with NFIP requirements.
Installing compliant flood vents into existing homes is an
easy and inexpensive process for those who are well trained.
Retrofitting involves either replacing existing air vents with
compliant flood vents or cutting new holes in the
foundation/enclosure walls and garage walls/garage doors to
install compliant flood vents. Depending on the specific
challenges at the home, there are instances in which the home's
mechanicals must be raised, perimeter dirt surrounding the home
excavated, and fill brought in, and in some cases, the home may
even need to be elevated. Check here for a
retrofit slide deck.
But Can I Save Money?
As we all know, while reducing the risk of severe loss may be
of interest to some, reducing the cost of flood insurance will
interest all consumers. While the premium reduction impact of
flood mitigation strategies is specific to each home, one
leading expert, Smart Vent Products, Inc., of Pitman, New
Jersey, is happy to document the savings realized by many of
their customers. Smart Vent Products reports that, on average,
home owners have experienced a positive return on their
investment (installation and materials) in less than 2 years.
The company offers the following examples, each NFIP policies
and before BW12.
Rengstorff Windrose Homeowners Association
(Mountain View, California)
NFIP insurance went
from $10,000 to $4,000 a year: 60 percent
reduction
Esmond Carr (Gentilly, Louisiana)
NFIP
insurance went from $1,600 to $300: 81 percent
reduction
Jim Herley (Chesapeake, Virginia)
NFIP
insurance went from $1,600 to $244: 85 percent
reduction
Clem Huerstel (insurance agent in New
Orleans, Louisiana, worked with customer on
retrofit)
NFIP insurance went from $3,100 to
$300: 90 percent reduction
Larry Owens (Cape San Blas, Florida)
NFIP
insurance went from $5,500 to $500: 90 percent
reduction
Mike Koch (Indian Rocks Beach, Florida)
NFIP
insurance went from $3,000 to $375: 88 percent
reduction
Bill Bruce (Miami Springs, Florida)
NFIP
insurance went from $3,700 to $379: 90 percent
reduction
Source:
www.smartvent.com/testimonials.
Adjusting to the New Normal
BW12 has created an uncomfortable new normal in flood
insurance, presenting perhaps even greater challenges for
insurance professionals than for consumers. Starting with the
basics, we can work to help consumers better understand their
risk of flooding by using
FEMA's Digital Federal Insurance Rate Map or the
NFIP's One-Step Flood Risk Profile. We need to become
skillful at helping those we serve to better understand the
importance of the data provided by their elevation certificates.
Check this site for a helpful FEMA document, "Homeowners
Guide to Elevation Certificates."
With the elimination of taxpayer subsidies, reducing
increased insurance costs will now require specialized knowledge
that results in the substantive improvement of the risk profile
of a home. Absent the technical depth to explain all of the
construction and engineering-related issues and solutions, what
resources are available to equip risk advisers to help consumers
begin to understand the issues and solutions, and who can
provide specialized assistance? Just as we know not to offer
consumers legal advice, we also cannot present ourselves as an
authority on the many steps that may be needed to improve the
risk profile of a home. Instead, we can serve as a helpful
resource and refer home owners to others offering more
specialized expertise. The
Association of
State Floodplain Managers is an organization of
professionals involved in floodplain management, including flood
hazard mitigation and flood preparedness. For those seeking an
expert resource, consider establishing a connection with a
Certified Floodplain Manager. This author has found the
professionals at Smart Vent Products, Inc., to be a great
resource. They can be reached at (877) 441–8368 or by e-mail at