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 email.