Message from Jim

Last month, we eliminated the need for mandatory flood insurance for several of our clients by removing their homes from a Special Flood Hazard Area using FEMA’s Letter Of Map Amendment (LOMA) process. Each of the structures were vertically well above the Special Flood Hazard Area (SFHA), so removal of these apparent “inadvertent inclusions” made sense. In one case, the structure was as much as thirty feet above the Base Flood Elevation. We have also eliminated several other structures from the flood insurance requirement that were much closer to the SFHA, both horizontally and vertically. Some of them were only tenths of a foot above the Base Flood Elevation. By simple observation, actual flood risk was more obvious in those removals.

What was accomplished with these removals? Sure, we have eliminated mandatory flood insurance, saving a homeowner monthly flood insurance premiums, and perhaps, even made the investors a bit more comfortable relative to investment risk, but we essentially accomplished nothing as it relates to actual risk. Actually, an argument could be made that the removal of flood insurance created a higher risk, especially if map error exists, or a large storm hits, because now the home would be unprotected.

How do we address this concern? To emphasize the difference between mapped flood risk and actual risk, and make sure homeowners are prepared for both, it is company policy to always recommend a client purchase a Preferred Risk Policy upon removal from a SFHA. Removal from a SFHA modifies risk based only on a flood map, but does not change actual risk on the ground. If actual risk was to change, either the structure or the flooding source would physically need to be moved. The latter can be achieved with a Physical Map Revision, but this effort is not part of a loan transaction. Conveying these concepts helps homeowners make more informed decisions, and protects consultants from potential liability by making sure clients understand the risk of having no insurance coverage.

For me, disconnect starts with a homeowner’s belief they have profound understanding and control of “risk”. Merriam-Webster defines risk as the possibility that something bad or unpleasant will happen. Driving a car at the speed limit while wearing a seat belt reduces the risk of being injured in a car accident, but it will never eliminate the danger completely since other factors contribute to risk outside of personal control. There is no difference with flood risk.

Siting or elevating a structure properly, constructing or purchasing a home outside of a SFHA, or having a flood insurance policy, whether mandatory or optional, are activities a homeowner can control. Poor development choices or over-development in a watershed, erosion, storm size, and accuracy of flood maps, are some of the many factors a homeowner cannot control. Believing one can control “risk” can be more dangerous than the risk itself.

So why do so many have a problem with flood risk when compared to other types of risk covered by health, life, auto, business, and dental insurances? In my opinion, homeowners can “touch and feel” what they believe is the sole contributor to flood risk, the flooding source. The above mentioned factors which cannot be controlled are quickly eliminated with visual observation, safely protected by personal biases and media articles which further support our flood risk decisions.

Winter Storm Riley hit the East Coast five days ago, and sadly, lives were lost, severe flooding occurred, and almost half a million people are still without power. A large majority of those impacted did not fall within a SFHA. Being pro-active and implementing strategies you can control will always yield a better result than being reactive to the factors you are not able to control.

In the News

The National Flood Insurance Program has been given another life line!

On February 9, 2018, the President signed legislation passed by both houses of Congress, which will extend the program's authorization until March 23, 2018. There have been several reauthorizations and a brief lapse in the last few months.

Below is a link to FEMA's webpage to find updates on program status:

National Flood Insurance Program: Reauthorization

NFIP Lapse During Government Shutdown Highlighted Insurance Gaps

By Gloria Gonzalez, Business Insurance, January 30, 2018

So what happens, or could happen, if the program were to lapse again? This article from Business Insurance shares their evaluation of the recent lapse.

Click here to read the article.