Correcting Inaccurate Flood Zone Determinations. (Rules & Regulations)

By Freudenthal, Dan | Risk Management, November 2002 | Go to article overview

Correcting Inaccurate Flood Zone Determinations. (Rules & Regulations)


Freudenthal, Dan, Risk Management


In 1968, the United States Congress established the National Flood Insurance Program (NFIP) to help mitigate disaster relief costs resulting from flood damage. The Federal Insurance and Mitigation Administration (FIMA), which is part of the Federal Emergency Management Agency (FEMA), administers the NFIP.

By adopting NFIP codes and standards, communities formally agree to regulate the use and development of flood-prone lands, also known as Special Flood Hazard Areas, or SFHAs. In return, FIMA agrees to provide flood insurance coverage for any property located in flood zones. FIMA uses flood insurance rate maps to determine which properties are located in SFHAs. These same maps are also used by underwriters and agents to determine premiums, and by lenders to determine insurance-purchasing requirements.

NFIP regulations require that all federally regulated lending institutions perform flood zone determinations on properties before granting loans. If a property is within an SFHA, the lender must require that the borrower maintain flood insurance on all buildings within the SFHA for the loan period.

Most insurance underwriters raise the deductible for flood coverage for an SFHA property from the usual $25,000, which typically satisfies a lender's requirement, to $250,000 or more. This forces owners and operators to buy down the deductible by purchasing policies available through the NFIP or an alternative source.

Where Technology Is Not Working

In theory, these laws are fair and just. The premiums generated by SFHA insurance requirements help pay for the disaster relief costs that flood zones so often necessitate. The problem, however, lies within the flood zone determination procedures used to implement the laws. For all participating communities, the NFIP establishes base flood elevations-below which there is significant exposure to flood damage caused by a hundred-year flood--by comparing federally determined flood-danger elevation to the elevation of buildings located within the SFHA.

Over time, flood zone determination companies have streamlined their process from manually comparing several types of relevant property information with flood insurance rate maps to instant computer searches that cross reference street addresses with digital maps. …

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