Message from Jim
At the end of each year, most of us ready ourselves for the holidays by reflecting on the importance of friends, family, and of our many blessings. For me, it is also a great time to share my personal list of NFIP misconceptions which need to be eliminated to make future experiences with the Program less confusing. The timing of this list perfectly coincides with another news article about a community that was impacted by a major flooding event after a map change occurred, which prompted homeowners to cancel their flood insurance policies because mandatory flood insurance was no longer required. Mentioning the source or the location of the article is not necessary, but breaking down the information within it is worthy of discussion since it continues to send many in the wrong direction.
First, flood damage is often not covered by a homeowner’s insurance policy. If you do not have two policies, there is a good chance that flood coverage does not exist. Review your policy, or call your insurance agent to make sure you have a clear understanding of your flood coverage.
Next, is the belief that when the mandatory insurance requirement is removed by a lender, actual flood risk is no longer a concern. In my opinion, there is no bigger misconception. It is important to remember the mandatory flood insurance requirement only pertains to loans created by federally-regulated and insured financial institutions or Federal Agency loans in excess of $5000, when the loan collateral falls in a Special Flood Hazard Area (SFHA). In other words, it is simply a tool to aid in the evaluation of risk for the investor holding the federally-insured mortgage note as an investment. A lender may remove the mandatory insurance requirement if presented with data that indicates a lower perceived flood risk, typically through a FEMA Letter of Map Amendment Removal Document, but they may also remove it if the above mortgage requirements no longer apply.
To break down this misconception differently: if you believe that any dwelling which does not have mandatory flood insurance is safe from flooding, then any dwelling outside a Special Flood Hazard Area, one which has a private mortgage, or is purchased with cash, would be forever safe from a flooding event. Hopefully, that sounds crazy! Also, everyone must understand that a storm can reach further inland than the SFHA line on a flood map.
Even if a map revision contains new data which considers changes to the watershed, impervious surfaces, development, and other components which impact flood, it is incorrect to assume the program is in the business of weather forecasting. Actual risk should never be overlooked and is very difficult to predict. If it was easy to predict, many weather forecasters would lose their job since it is not uncommon for them to be incorrect. We don’t even hold them accountable for being incorrect, but since flood mapping impacts our lives, a greater level of accuracy is demanded.
As floodplain consultants, whenever we remove a structure or parcel of land from the SFHA using FEMA’s Letter of Map Change process, we always recommend a Preferred Risk Policy (PRP). This recommendation is made regardless if the improvements were 0.1’ or 30’ above the Base Flood Elevation, and to emphasize to our client that perceived risk per the maps and actual risk are different. Hurricane Irene brutally reminded Vermonters living in a mountainous non-coastal state that anyone can be affected by a flooding event. Unfortunately, many of them did not have a flood insurance policy because they were not in a high-risk flood zone and therefore it was not required. Based on my understanding of the article, many of the homeowners who had the mandatory flood insurance requirement removed did not understand that a PRP was an option so they were entirely without coverage. Based on the quoted fee of the flood insurance policy, it is my guess that the lower cost non-mandatory policy was not even offered.
Another large misconception pertains to the phrase “100-year flood event”. This term does not mean that a large storm will only occur once every 100 years. The term means there is a 1% annual chance of a storm occurring which causes a flood that equals or exceeds the "base flood" elevation, also referred to as the "100-year flood". This statistic is based on probability, and to assume a storm of that magnitude will not occur more than once in 100 years is no different than flipping a coin 20 times expecting to get heads 10 times. It is a reasonable expectation given the 50/50 chance, but since it is very possible heads may only come up 5 times, we probably wouldn’t risk betting a large sum of money on it. Yet people do it all the time when considering flood insurance. This is a very important misconception to remove since homeowners featured in the article were comfortable that another large storm would not occur for 85 years, since the last large one was 15 years ago.
My largest concern with the article is that it appears to have been written solely by a news reporter interviewing homeowners, with no content or insight provided by a professional consultant who understands flood risk or the National Flood Insurance Program. It is my opinion that since the media can fuel misconceptions, and it is truly difficult to predict the frequency and severity of storms, or how a future map change could impact a property, homeowners, lenders, insurance agents, community officials, and real estate licensees, should all take responsibility for understanding program purpose and options, and work together to be proactive.
