Introduction

Unfortunately, Hurricanes Katrina and Rita taught thousands of Louisianans a very expensive lesson: Just because your home is not mapped within a high-risk flood zone (known as a Special Flood Hazard Area, SFHA) does not mean that you are safe from potential floods. Hundreds of thousands of residences flooded because rainfall amounts were either greater than the risk levels shown on the flood hazard maps or were flooded from rising water from levees being overtopped or breached.

Nationally, 20-25% of flood loss claims are from properties located outside of the high-risk zones. Much of the flooding during Katrina was outside the high-risk area. It's easy to see that flood insurance is not just for people who live in the high-risk areas, but for those in low-moderate risk areas and behind levees. Katrina and Rita proved to be frightening examples of that fact.  The National Flood Insurance Program (NFIP) offers a low-cost policy including contents known as a Preferred Risk Policy (PRP). This policy is for people living in low- or moderate-risk zones and premiums start as low $112 per year.

Even with the strengthening or raising of a levee or the elevating of your home or business, the risk for flooding continues to exist, though the level of risk may be reduced.  So, whether your building is located in a high-risk or low- or moderate-risk area, you should consider financially protecting yourself with flood insurance.  In addition, many of the flood hazard maps in Louisiana are outdated. They are being revised and will show what the current flood risks are in each community.  As a result of this map modernization effort, a more accurate picture of the level of risk to flooding will be available for local residents, renters, and businesses who may be mapped into a higher or lower risk zone.  As a result, their flood insurance requirements may change.  More details on the effects of map changes on insurance can be found here.

The National Flood Insurance Program (NFIP), administered by FEMA, makes flood insurance available to any resident in Louisiana, as long as they live in an NFIP Participating Community. For a homeowner and business owner, flood insurance can cover structure and content losses that occur from flooding. For a renter, it covers contents only. Remember that flood insurance is not typically included in your standard homeowner's or renter's policy. You must purchase it separately, but the cost usually averages just about $500 per year. It is sold through private insurance companies and is financially backed by the federal government. You can learn more about the NFIP at http://www.floodsmart.gov or by contacting your insurance agent.

Effects of Map Changes on Insurance

The coastal parishes of Louisiana will be receiving updated digital flood hazard maps (known as Digital Flood Insurance Rate Maps) in 2007.  When these maps become effective, property owners may find that their level of risk is higher or lower than they thought.  There will be properties that are mapped into higher risk areas or their Base Flood Elevation changed. Some will be mapped into lower risk areas and some will have no change at all.  Consequently, it is important for homeowners to know their risk of flooding so that they can make informed decisions and take proper steps to reduce those risks.

When the new maps become effective, flood insurance requirements will change.  However, options exist that will allow property owners to save money while still protecting their property.

*Required for loans provided by federally regulated lenders as well as Government Sponsored Enterprises such as Freddie Mac and Fannie Mae.

What Is Covered By Flood Insurance

Most homeowner’s insurance policies do not provide coverage for damage caused by floods - the National Flood Insurance Program’s policy does. Almost every type of walled and roofed building may be insured, as long as it is located in a community that is participating in the National Flood Insurance Program. This includes commercial buildings, single and multi-family homes, condominiums, and manufactured (i.e., mobile) homes that are anchored to permanent foundations and regulated by a local community, city or Parish. Separate coverage may be purchased for building contents, so renters can insure their belongings too!  See the Summary of Coverages for a description of what is and is not covered and Flood Insurance Basics  for an overview of what is needed to write a flood insurance policy.

Limits and Insuring to Value

The maximum amount of coverage for a residential property and its contents is $250,000 and $100,000, respectively (limits for commercial property are $500,000 for buildings and $500,000 for contents). If your home is in a high-risk zone or SFHA, (shown on the flood maps as zones beginning with the letters “A” or “V”) and you have a mortgage, most lenders will require you to purchase flood insurance for only the amount of the loan (up to $250,000, not to exceed the value of the home itself).  However, to receive Replacement Cost coverage (available on primary residences only), the building must be insured to 80% of its value.  Unfortunately, many people only insure it for the loan amount, and therefore are not fully protecting the building. Nor, do they receive Replacement Cost coverage. Instead, any claim will be adjusted using the depreciated value of the building, also known as Actual Cash Value (ACV).  Sadly, this is what many Louisianans discovered when they went to file their claim after Katrina and Rita.

To ensure the greatest amount of protection, the home and contents should be insured to their true value, up to the NFIP maximum limits.  Note that contents are always adjusted at ACV, and typically must be purchased in addition to the building coverage (except with Preferred Risk Policies).  If limits are higher than what the NFIP provides, there are companies that do provide such coverage; it is known as Excess Flood Insurance.

Low-cost Option; Preferred Risk Policy

A low-cost flood insurance policy is available for those that live or have a business in a low- or moderate risk zone (represented by the letters “B”, “C”, or “X”on a flood hazard map).  If the property has had minimal or no flood losses, it may qualify for the NFIP’s Preferred Risk Policy (PRP).  This policy covers both property and contents, whereas Standard NFIP policy coverages have to be purchased separately.  Premiums for a home can start as low as $112 per year, and for a renter as low as $39 per year.  Businesses that own their building can purchase a PRP for as little as $500, and those that lease their space, can get contents coverage starting at $275.  With 20-25% of all flood claims occurring in these zones, a PRP could be a worthwhile investment.

BENEFITS OF FLOOD INSURANCE
Flood Insurance vs. Disaster Assistance  

Too often, people find out in the aftermath of a flood that homeowner and business policies do not cover damage from floods.  Maintaining a federal flood insurance policy is one of the most effective ways to protect yourself against financial devastation from flood damage.  Federal disaster assistance is available only if a flood (or other disaster) is so large and widespread that it warrants a federal disaster declaration from the President. Most floods are not Presidentially-declared disasters.

The most common financial disaster assistance to a homeowner is an SBA Disaster Loan . Grants are available for those that don’t qualify for the loan. However the average Individuals and Households Program grant is only about $4,000.  This loan must be repaid, along with any existing mortgages.  If you receive an SBA Disaster Loan as a result of flooding, it has to be repaid along with any current mortgage(s) you have PLUS maintain flood insurance for the life of the SBA loan.  For example, if you get an SBA Disaster Loan for $50,000 at 4% interest for 30 years, repayment will be $240 per month, or $2,880 annually!

With flood insurance, you are paid when a flood occurs, even if it is not declared a disaster by the President.  It can reimburse you for covered losses up to $250,000 for a home ($100,000 for personal contents) and $500,000 for a business ($500,000 for contents).  For example, the average cost of a $100,000 for covering a house is a little more than $400 a year, significantly less than the annual repayment of an SBA disaster loan of the same amount.  A $50,000 policy (with $20,000 in contents included) on a home located in a low or moderate risk area would only cost $180 per year…or less that 50 cents a day!

Increased Cost of Compliance (ICC)

If your home or business is located in a high-risk area (Special Flood Hazard Area, SFHA) and is substantially damaged by a flood (over 50%), you may be required to meet certain building requirements in your community that may be new since the building was first built (or subsequent substantial improvements or repairs).  These building ordinances or codes are put in place to reduce future flood damage in your community.  To help cover the costs of meeting those newer community floodplain ordinances, the NFIP flood insurance policy provides $30,000 in coverage in addition to the building coverage. The total loss paid for a home or business, including ICC, cannot exceed the maximum amount of coverage available; $250,000 for a residential structure and $500,000 for a non-residential structure.

There are four options you can take to comply with your community's floodplain management ordinance and help reduce your future flood damage in order that the ICC funds can be applied. You may decide which of these options is best for you:

1.  Elevate - This raises your home or business to or above the flood elevation level adopted by your community.

2.  Relocate - This moves your home or business out of harm's way.

3.  Demolish - This tears down and removes flood-damaged buildings.

4.  Floodproof - This option is available primarily for nonresidential buildings (businesses). It involves making a building watertight through a combination of adjustments or additions of features to the building that reduces the potential for flood damage.

More details can be found in this brochure, by visiting www.fema.gov/business/nfip/icc.shtm or contacting your local community floodplain manager.