Flood Insurance

How the National Flood Insurance Program Works

The current flood insurance program was established by congress in 1968 and can be summarized as follows.  Property owners can purchase insurance for their homes up to a maximum of $250,000 for the structure and $100,000 for contents.  The rate that a particular homeowner pays is dependent on the flooding risk, which in our coastal community, is directly related to the elevation of the lowest finished floor (and major equipment such as a/c units, water-heaters, etc.).  The government has been using decades-old Flood Insurance Rate Maps (FIRMs) to designate the level of risk which in turn determines the cost of insurance.  New Rate Maps are currently being proposed for South Florida.

In simplified terms, in Delray Beach most of the insured structures currently fall into two major designations corresponding to low and high risks of flooding:

Zone X – A low risk and is defined as having only a 0.2 percent chance of flooding in any given year.  Low risk is a relative term that should not be thought of as no risk at all.  Low risk should be conservatively thought of as just lower risk.

Zone AE – A high risk zone and is also called a Special Flood Hazard Area (SFHA).  High risk zones have at least a 1 percent risk of flooding in a given year.  In our beach area Zone AE homes are generally closer to the low elevation Intracoastal Waterway basin, but can go east all the way to A1A in some neighborhoods.

The difference of insurance costs between homes in Zone X and Zone AE can be very significant, depending on the specific elevation of those in an AE Zone (see examples below).  Homes in AE zones are also required to have flood insurance if they have a mortgage through a federally regulated or insured lender (just about all non-private mortgages).  Homes in Zone X are encouraged to have flood insurance even though most bank mortgages do not require the coverage.  Please keep in mind that flooding inside of a home of just 1-2 inches can easily cause several tens-of-thousands of dollars worth of damage to floors, walls, fixtures, furniture, equipment, and appliances.

 
Example Flood Insurance Rates 

Flood insurance is a Federal Program and so all rates are the same regardless of which insurance agent you use to secure your flood policy.  We interviewed a local insurance agency and received the rates below from them.

As a representative example, a beach area home in the low risk Zone X can be insured for $250,000 for the low rate of $414 per year (with a $1,000 deductible).  Homes in the high risk Zone AE will have annual flood insurance costs for the same $250,000 policy ranging from $519 to $1,594 depending on their elevation.  FEMA in its current maps defines a Base Flood Elevation of 7 feet as a reference line (BFE=7).  Homes whose finished lowest floor elevation is considerably higher than 7 feet, and are therefore less flood prone, will have premiums 1/3 as expensive as homes that just meet the BFE=7 feet requirement.  On the other hand, homes with elevations below 7 feet are even more prone to flooding and have flood insurance premiums many times higher.  For the $250,000 coverage mentioned above, premiums for different finished floor elevations in high risk Zone AE are as follows:

Lowest Finished Floor Elevation   7 Feet                    Premium   $1,594
Lowest Finished Floor Elevation   8 Feet                    Premium   $   869
Lowest Finished Floor Elevation   9 Feet                    Premium   $   625
Lowest Finished Floor Elevation 10 Feet                    Premium   $   553
Lowest Finished Floor Elevation 11 Feet                    Premium   $   519

Older homes built before tougher elevation standards were imposed by the National Flood Insurance Program may be located below the FEMA BFE=7 feet current requirement.  These homes have insurance premiums that are considerably higher:

Lowest Finished Floor Elevation 6 Feet                      Premium   $5,530
Lowest Finished Floor Elevation 5 Feet                      Premium   $6,317

As can be seen from the numbers above, there are major discounts for higher elevation homes and catastrophic penalties for homes built below the Base Flood Elevation of 7 feet.  City of Delray Beach building codes have a minimum elevation requirement that is equal to that same FEMA BFE=7 feet.

To add further to the confusion, the elevations used above are based on the NGVD1929 elevation standard.  This standard is being phased out and is being replaced by the NAVD1988 standard elevation measurement system.  The BFE=7 feet NGVD1929 elevation used above is equal to approximately 5.5 feet using the NAVD1988 elevation standard.  New proposed maps will have the Base Floor Elevation raised from 5.5 feet to 6.0 feet NAVD1988.  Homeowners who have a survey for their homes should look carefully in the survey notes or legend to see which standard, NGVD1929 or NAVD1988, was used by their survey company.  An error of designation could result in thousands of dollars difference in annual flood insurance premiums.

Proposed New Flood Maps for Palm Beach County

In August 2014 FEMA released proposed new flood zone maps which are expected to become effective in December 2015.  These maps are currently under a scheduled review process.  Palm Beach County has established a mapping web site that homeowners can use to examine their current designation as well as the proposed new designation.  The address for this site is:

http://maps.co.palm-beach.fl.us/gis/floodzones.aspx?

On this site you can search on either property address, owner’s name, or use the map to designate a property of interest.  An examination of the proposed flood zones on this site shows that many beach area homes will be moving from a low risk Zone X to a high risk Zone AE.  In addition, just about every building east of A1A which is presently designated X (or X500) will now have a new high risk designation of VE which applies to homes in greater danger because of wind driven storm surge flooding from the ocean.  These Zone VE homes will have a BFE=10 feet, 4 feet higher than AE homes (using NAVD1988).

The new maps are supposedly using much more accurate elevation measurement technology than was available in the past and this could cause a change of zone designation.  Perhaps more significantly, the new Base Flood Elevation is quoted in the newer NAVD1988 standard and is set at BFE=6 feet.  This equates to approximately 7.5 feet BFE in the old NGVD1929 standard.  In other words, the Base Flood Elevation has been raised by 0.5 feet.  This could cause a home currently designated just above a certain elevation marking line to drop just below the new line and cause a change of designated flood zone or an increase in the insurance premium.  The increasing rate of Sea Level Rise over the last few decades requires an increase of Base Flood Elevation in coastal communities.

It also appears that the newly released proposed maps and their zone designations on the Palm Beach County web site use the lowest elevation portion of the lot for their designation of the entire property.  For insurance purposes, they should be using the elevation where the home is actually located on a sloping lot.  Owners facing this problem do have a process by which they can provide information which will take into account the actual lowest finished floor elevation.  In doing so, owners may be able to save several thousand dollars per year on their flood insurance premiums.  We recommend contacting your insurance agency to find out how you can submit a FEMA Elevation Certificate.  This will require a certified survey detailing the elevations of floors, garages, machinery, and equipment.  If you will be performing a new survey, request that the survey numbers be provided using the NAVD1988 elevation standard in order to avoid confusion and errors.

There is also a process for homeowners to challenge the change of designation from low risk (Zone X) to a high risk Special Flood Hazard Area (Zones AE and VE).  The detailed process is described in various FEMA publications and typically will require some professional technical assistance for completion.  You can submit an application for a Letter Of Map Change (LOMC) which triggers a formal determination of the home’s elevation relative to the Base Flood Elevation.  FEMA will examine the map change request and will issue to you a Determination Document to either deny or approve the map change that you requested.  A formal approval, and change back to Zone X, will result in large savings in insurance premiums and even eliminating the requirement to carry flood insurance for most mortgages.

Keeping Lower Cost Rates – Grandfathering

As mentioned earlier, many beach area property owners may find that the new proposed Flood Insurance Rate Maps will show their properties moving from the low risk X and X500 zones to high risk AE and VE zones.  Some very significant insurance premiums increases may confront these homeowners.  FEMA allows a procedure called Grandfathering to avoid or reduce the increased premiums due to either a zone change or the 0.5 feet of increase in the Base Flood Elevation (BFE) when no zone change is involved.  The rules are somewhat detailed and the BPOA strongly recommends that homeowners in these situations work with their insurance agents to retain their lower premiums.  Information is also available through FEMA by calling 800-427-4661 (also see the web site fema.gov/flood-insurance-manual).  Those properties which will be allowed to Grandfather at lower rates are generally properties with continuous coverage, built in compliance with the BFE when constructed, not significantly reconstructed, and meet certain requirements regarding loss-history from previous claims.  Homeowners currently without flood insurance coverage should consider establishing continuous coverage before the new maps become effective in December 2015 in order to preserve Grandfathering options and savings.  Some of these Grandfathering rules may change depending on the implementation schedule and possible amendments to the Biggert-Waters Flood Insurance Reform Act of 2012.

Community Rating System

Each community participating in the National Flood Insurance Program can also qualify for a discount applicable uniformly to all its insured properties under a program called the Community Rating System (CRS).  The level of discount is determined by how well that community reduces its risk using 18 different activities grouped under four categories: Public Information, Mapping and Regulation, Flood Damage Reduction, and Flood Preparedness.  The CRS scoring system ranges from “10” with no discount at all, to “1” with a discount of 45%.  Delray Beach currently has a score of “9” which only provides a 5% discount.  Boynton Beach has a CRS score of “7” with a 15% discount, while Boca Raton has a score of “8” and a 10% discount.  The BPOA is currently working with a newly-initiated citizens volunteer Rising Waters Task Force and city staff to improve the city’s CRS score and achieve lower flood insurance rates for all insured structures in Delray Beach.  We were recently informally told that community outreach efforts have increased our Public Information points and we will qualify for a score of “8” and a 10% discount in citywide premiums after the completion of a federal government review.  Delray Beach is in the process of contracting with a CRS specialist to guide further efforts for improving our CRS score.

Please pass along this information to your neighbors who may not be members of the BPOA.  We will be discussing flood insurance changes at our membership meeting currently scheduled for Wednesday, 3/25/2015, starting at 6:30 PM at Northern Trust Bank.