Help Clients Pay Less for Flood Insurance

For clients, it makes financial sense to take steps to reduce their flood risk no matter what, but in many instances reducing flood risk can also lower flood insurance costs. As an agent, you can help clients reduce their risks and reduce their costs by taking advantage of the following opportunities.

The amount that clients pay for their annual flood insurance premium is calculated based on many factors, including:

  • Flood risk (i.e., its flood zone)
  • Year of building construction
  • Building occupancy
  • Number of floors
  • Location of utilities and contents
  • Location of the lowest floor in relation to the Base Flood Elevation (BFE)
  • Deductible and amount of building and contents coverage

The National Flood Insurance Program (NFIP) encourages customers to work with their agents to discuss their cost reduction options – including taking mitigation action, choosing a higher deductible, or encouraging community action. Around 20% of property owners pay a discounted rate for their flood insurance premium.

For clients, particularly those in high-risk flood areas, it makes financial sense to take steps to reduce their flood risk no matter what, but in many instances reducing flood risk can also lower flood insurance costs.

Choosing a higher deductible

Choosing a flood insurance deductible amount is an important decision for your clients. As with car or homeowners insurance, choosing a higher deductible will lower their premium but will also reduce their claim payment, meaning they will need to cover the difference out of pocket.

Clients can choose different deductibles for building and contents coverage. The deductibles will apply separately to building and contents claims.

Increasing the deductible on a home’s flood insurance policy to the $10,000 maximum could reduce the annual premium by up to 40%. However, using the maximum deductible might not be appropriate in every financial circumstance, and may not be allowed by lenders to meet mandatory purchase requirements.

Each year, check with your clients to review their Policy Declarations Page, confirm their deductible and coverage amounts, and to ensure they understand their specific flood insurance risks and opportunities.

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What is Base Flood Elevation (BFE)? BFE refers to the elevation that flood waters will reach or exceed during a "100-year flood," or a flood with a 1% chance of occurring in any given year.

Providing an Elevation Certificate

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If your client’s building is in a high-risk area, an Elevation Certificate provides important information needed to determine their risk-based premium rate. For example, the certificate shows the location of the building, Lowest Floor Elevation as compared to BFE, building characteristics, and flood zone.

Without an Elevation Certificate to understand a property’s full flood risk, agents must assume a property is at high risk for flooding and their clients then must pay higher rates.

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For clients without an Elevation Certificate, encourage them to learn more and take action to acquire a certificate for their property. Providing a more accurate picture of their property’s flood risk will likely reduce their annual premiums.

Mitigating their risk

What your clients pay for flood insurance often has a lot to do with how much flood risk is associated with their property. Mitigation not only helps protect properties from flood damage, but also can help reduce how much clients pay for their flood insurance policy.

For example, by elevating a home’s first floor three feet above the BFE, clients can expect to save 60% or more on their annual flood insurance premiums.

For clients considering ways to reduce their costs by repairing, remodeling, or rebuilding their home, the NFIP recommends the following common flood mitigation options:

  • Something as simple as elevating the heating and cooling systems, water heaters, electrical panels, and other utilities so that they are less likely to be damaged or destroyed in a flood may offer flood insurance savings.

    If the machinery or equipment that services your client’s building is located below the BFE, an annual surcharge may be added to their premium.

    Instead, clients should consider using an attic, an extra closet, or an elevated platform to store utilities.

  • For properties in the high-risk flood area, lack of proper flood openings can increase costs.

    house

    In the high-risk area, for all new construction and substantial improvements of fully enclosed areas below the lowest floor, the NFIP requires:

    • A minimum of two flood openings, on at least two exterior walls.
    • A minimum of one square inch of opening for each square foot of enclosed area.
    • The bottom of the flood opening must not be higher than 12 inches above the exterior grade.

    To receive cost savings, flood openings must meet all the criteria listed above. Garage doors, windows, and exterior doors do not count as flood openings unless they have flood openings installed within them.

  • The NFIP defines a basement as “any area of the building having its floor below BFE on all sides.” That means crawlspaces that are below BFE on all sides are considered basements as well.

    construction site, unfinished home

    Unless explicitly authorized, basements in new construction in the high-risk flood area are prohibited and not covered by the NFIP.

    If your client’s home has an existing basement and your local officials determine that it is being substantially improved or is substantially damaged, the basement must be eliminated. Property owners can usually do this by backfilling the basement with compacted soil or other suitable material.

    If your community has adopted basement standards, property owners in the high-risk area with basements will bear a 15 to 20% increase in their flood insurance premium.

  • Elevating a home is the fastest way to reduce flood insurance costs.

    Clients who live in the high-risk flood area can save hundreds of dollars each year for every foot that their structure is elevated above their community’s BFE. Elevating just one foot above the BFE often results in a 30% reduction in annual premiums.

  • Existing structures: One of the most effective mitigation options is relocating an existing home to an area of the property located above the BFE or outside the high-risk flood area. This method may be costly, but can significantly reduce flood risk and the cost of flood insurance.

    New construction: If your client is preparing to build a new home, work with them to evaluate the property to determine how and where to build based on BFE and flood risk.

    Of course, homes constructed outside of the high-risk area or above the BFE are not 100% safe from ¬flooding. More than 1 in 5 flood claims come from properties outside high-risk flood zones.

Image depicting the side of a house

For more on mitigation, including information on costs, technical limitations, and permit requirements, review the Homeowner’s Guide to Retrofitting. This guide also has information to help your clients develop their flood protection strategy.

NFIP funding for elevation or relocation

If your client’s home or business is damaged by a flood, they may be required to meet certain community building requirements to reduce future flood damage before they can repair or rebuild.

hand writing with pen

To help clients cover the costs of meeting those requirements, the NFIP offers policyholders up to $30,000 of Increased Cost of Compliance (ICC) coverage.ICC coverage can help pay for elevation, relocation, and demolition.

house with porch

Clients considering ICC coverage are encouraged to review the Increased Cost of Compliance brochure with their agent and discuss their options with a local building official or floodplain manager.

Another way for clients to get help with the cost of elevating their home or business is through a FEMA or NFIP grant program. To reduce future flooding, the NFIP has set an ambitious goal to quadruple the amount invested in mitigation efforts across the country.

Grants are administered by states and local communities, and each state decides which projects it will fund and for how much. For clients who wish to pursue mitigation grants, they should contact their local floodplain manager or visit FEMA’s Hazard Mitigation Grant overview.

Encouraging community action

Agents and clients can encourage their communities to participate in the Community Rating Service (CRS) or improve their CRS rating.

CRS is a voluntary incentive program that recognizes communities for implementing floodplain management practices that exceed the NFIP minimum requirements.

In exchange for a community’s proactive efforts to reduce flood risk, policyholders can receive discounted flood insurance premiums up to 45%. The discount is calculated based on the extent of the community's efforts to reduce the risk of flooding.