Recent Articles

Getting Answers to Questions about the National Flood Insurance Program
(3/2/2012)

Expediting Determinations under the Coastal Barrier Resources Act
(3/2/2012)

Making Repetitive Loss Properties Safer: The Grants ICC Pilot Program

Why Is the NFIP Piloting a Program Aimed at Severe Repetitive Losses? 

The Flood Insurance Reform Act of 2004 (FIRA 2004) requires that FEMA and the National Flood Insurance Program (NFIP) work toward broadening the Standard Flood Insurance Policy (SFIP) Increased Cost of Compliance (ICC) coverage from a local  code compliance-based insurance benefit to one that also leads to more specific and consistent land use and control. As a result of the FIRA 2004 ICC provision, FEMA established a pilot program, called the Grants ICC Pilot Program, to work in conjunction with the Severe Repetitive Loss (SRL) program. 

In order to move toward compliance with this portion of FIRA 2004, the NFIP established this pilot program in January 2010 to see how such a program will work and whether it can be effective in assisting communities with safer growth. The pilot program is intended to be used for residential structures with the highest risk – those in the Special Flood Hazard Areas (SFHAs) that have been determined to be severe repetitive loss properties. The pilot has another purpose, beyond affecting the traditional ICC market, by providing assistance for those buildings at highest and repetitive risk – buildings in the SFHA. The pilot will potentially reach an underserved ICC market – severe repetitive loss structures in lower-risk B, C, or X flood zones.

Policies for severe repetitive loss structures are processed and controlled through the NFIP Direct Facility, not Write Your Own Companies. This allows the NFIP to monitor these policies, and to assist with mitigation of the flood risks. Since only severe repetitive loss structures will be affected, this allows the pilot program to be conducted within the NFIP Servicing Agent’s Special Direct Facility. The NFIP will be in a unique position to monitor activities and judge results.

What Is the Traditional ICC Coverage?

The SFIP has a provision that will assist the policyholder to comply with a state or local floodplain management law or ordinance affecting repair or reconstruction of a structure suffering flood damage. Eligible mitigation activities include elevation, floodproofing, relocation, or demolition (or any combination of these activities) of the structure.  Policyholders may receive up to $30,000 under this coverage. The structure must meet certain eligibility criteria, including a substantial damage or repetitive loss determination by a local official.

Traditional ICC benefits are paid when an insured building is “substantially damaged” by flood. What does that mean?  When used in relation to flood insurance, the term “substantial damage” means flood damage sustained by a building whereby the cost of repairing the flood damage would equal or exceed 50 percent of the market value of the building at the time of loss. The local community makes this determination. The benefits are paid to assist policyholders in complying with state or local floodplain management laws or ordinances.

In hopes of assisting with the creation of safer communities, since 2001 the NFIP has allowed the assignment of the ICC benefits to the community in which the property is located only when the assignment is in conjunction with a FEMA Hazard Mitigation Assistance (HMA) Grant. That is where the types of mitigation that are eligible for these benefits come in – elevation, floodproofing, relocation, or demolition are the activities covered by HMA grants. 

Why Establish a Pilot Program in the First Place?

Expanding ICC to cover mitigation efforts in conjunction with the SRL program and not directly related to damage will be a big change from traditional ICC coverage. In addition to reaching the traditional ICC market, the pilot will potentially reach an underserved ICC market – severe repetitive loss buildings in lower-risk areas – B, C, or X Zones. 

This pilot program actually goes further back, to the 1968 Flood Insurance Act, which discusses assisting with mitigating “properties that have sustained flood damage on multiple occasions, if the Director determines that it is cost-effective and in the best interest of the National Flood Insurance Fund to require compliance with the land use and control measures.”

Are There Limitations to the Grants ICC Pilot Program?

This pilot program will be limited to the following:

• Only severe repetitive loss buildings will be eligible under the Grants ICC Pilot Program. Again, this covers all flood zones, not just the highest-risk SFHAs. As many as 2,000 of the 8,000 severe repetitive loss buildings are rated in B, C, or X Zones. Those 2,000 include buildings that are actually located in A and V flood zones that have grandfathered X Zone rates. 

• NFIP policies for severe repetitive loss buildings that have been moved from a WYO Company or the NFIP Servicing Agent to the Special Direct Facility (SDF) and are managed by the NFIP Servicing Agent, a FEMA Contractor. The selection of only policies for buildings that have moved to the SDF will provide the NFIP with greater control of the pilot program.

• Severe repetitive loss buildings that have been included in an approved FEMA SRL program grant.

• Severe repetitive loss buildings owned by policyholders who have assigned the ICC benefits to the community in which the building is located. 

• The benefit cannot exceed the lesser of the required non-Federal cost share for which the policyholder is responsible, the maximum ICC coverage available, or the covered actual cost of eligible ICC activities.

• The ICC benefits must be assigned by the policyholder to the community in which the property is located.

• Severe repetitive loss buildings that are not already in compliance with the applicable local floodplain ordinance.

What Buildings Are Eligible for the Grants ICC Pilot Program?

An HMA Grant offer has been made that meets the following conditions:

• The offer of mitigation assistance is for a severe repetitive loss property.  

• The building is covered by a contract of flood insurance issued under the NFIP.

• In addition, for eligibility under the above two points, the structure must have been continuously insured for 180 days prior to the opening of the period of availability for the grant program, through the day the policyholder accepts the mitigation offer. (Satisfying this requirement to be eligible for payment of ICC benefits under the policy does not relieve the policyholder of any additional obligations required by the grant program).

Where Does This Lead to for the NFIP? 

This pilot program allows the NFIP to measure and test some of the possible provisions of a broader ICC program, examining the pros and cons of expanding the ICC claims process to cover FEMA grant-related projects as well. We still must maintain the basic NFIP insurance principles, such as ensuring that the traditional ICC claims process remains sound. The expectation is that once the project is used to affect a broad range of buildings across the United States (the 8,000 severe repetitive loss properties), the NFIP can better understand the needs, implications, and outcomes of such a venture. 

For more on the pilot program:
Policy issuance: Severe Repetitive Loss Increased Cost of Compliance (ICC) Pilot Program Policy Issuance 1-2010 – http://www.nfipiservice.com/stakeholder/pdf/bulletin/w-10007b.pdf

ICC – http://www.fema.gov/plan/prevent/floodplain/nfipkeywords/icc.shtm.
SRL – http://www.fema.gov/government/grant/srl/index.shtm.
SRL Pilot Program Grant Archives – http://www.fema.gov/government/grant/srl/archived_guidance.shtm.