In Massachusetts, particularly on the South Shore, Cape Cod and Islands, floods are a frequent natural disaster. We’re sharing some recent flood insurance case studies that we’ve handled in recent years.
CONDO IN GLOUCESTER
A new client reached out to RogersGray in search of a solution regarding a condo flood policy. The building was torn down and a new foundation was poured in 2013, but construction did not continue again until 2017. This gap period had implications for the policy because the flood maps were updated in 2014. The old flood zone was elevation 8, and was updated to elevation 14. The building’s lowest floor was elevation 11, putting it three feet below the flood elevation on the new map. The client was getting flood quotes of over $14,000.
When we reviewed the client’s documentation, we were able to confirm that the foundation permit was pulled in 2013, therefore grandfathering the building to the old flood elevation of 8. This put the building 3 feet above the flood elevation. The prior agent had also incorrectly classified the building as a commercial property. By fixing that error, RogersGray was able to increase the coverage available for the property from $500,000 to $750,000. With a $5,000 deductible, the new premium was $1,400.
VE ZONE ON THE CAPE
A building not constructed to the correct NFIP building code in a VE Zone asked RogersGray to look for alternative coverage. Their private flood policy was $12,000. The first floor, which should have been designed to break apart in a flood, was actually fully enclosed and finished. The zone was designated VE with an elevation of 19, while the lowest flood elevation is 10.5. All private options were higher than $12,000, so RogersGray submitted the risk to the NFIP for a rating. This method takes certain variables into consideration like the location of machinery or the contents of the lowest floor, and will give a different rating than what is reflected from the NFIP manual. In this particular case, most of the floor was a garage. The result from the NFIP after these considerations was a better rate than the private market could offer, with a premium of about $9,500.
YACHT CLUB ON CAPE COD
A well-known yacht club located on the water in Cape Cod had an NFIP flood policy in place for approximately $22,000 in what was determined to be an AE Zone (areas with a 1% annual chance of flooding). After the client requested that we review other flood policy options on their behalf, it became evident that there was an error in the original flood zone determination and the building had always been in the VE Zone (coastal hazard zone). During the review, it was also noted that the building had been incorrectly rated with a basement, when in fact the structure only had a walk out. Both of those errors increased the premium to somewhere in the $70,000 range.
Because the building did not have a true basement, RogersGray was able to obtain a competitive quote of $13,900 from a private market carrier. However, the client was advised that because a lender was involved with the property, they would be subject to a much higher rate with the NFIP if they chose to re-enter that program down the road. The insured decided that the immediate financial savings was too great a benefit, so the private policy was put in place with waivers, disclosures, and emails confirming the client accepted the risk of moving out of the NFIP plan.
UNIVERSITY HOUSING IN TEXAS
In certain scenarios, such as with large commercial risk placement, the NFIP and the private flood market can actually complement one another for the best insurance placement. For instance, a university located in Texas had 62 housing buildings spread across two different property locations. Six buildings were located within a Special Flood Hazard Area (SFHA) and the rest were located in shaded and unshaded “x” zones, meaning flood insurance was not required for those particular locations.
Flood coverage is included in the property policy. However, as a result of the six buildings being located in the SFHA, all structures on the properties have a $500,000 deductible for flood. The client wanted to buy down the deductible through a private “deductible buydown” program for 36 of the buildings. However, the cost across all buildings for the deductible buydown was $100,000. We looked at NFIP and private markets for a solution. Upon further investigation, we found we were able to “buy up” the deductible to $46,000 with the NFIP’s Preferred Risk Policy. Included in that price was contents coverage for $100,000 per building. We also secured private flood for the six buildings located in the SFHA for about 20% less than the NFIP was going to cost. The result was a deductible of $1,250 per building ($5,000 for those in SFHA), added coverage of $18,000,000 per occurrence (across all buildings) and even more insured property.
SECOND HOME ON CAPE COD
Older second homes through the NFIP have a very high premium, averaging in the $8,000-$15,000 range. The private flood market’s sweet spot is older, second home buildings with no basements. We often save an insured in this situation at least 50% on their premium. Even homes with a basement can see savings in the 20%-50% range over the NFIP, if London will accept the risk.
SRL IN MARSHFIELD
Severe Repetitive Losses (SRL) present a particularly difficult situation for finding competitive rates. SRL rates through the NFIP are very high and as their name would suggest, SRLs have a high number of losses, so the private flood market is particularly selective in adopting this risk.
A Severe Repetitive Loss building in a VE Zone approached RogersGray in an attempt to find a better rating. This SRL was challenging because it had a basement and was an older building that is considered “pre-FIRM,” a building for which construction or substantial improvement occurred on or before the effective date of an initial Flood Insurance Rate Map.
After reviewing the policy and information, it became apparent that the grandfathering for the building was incorrect. The building had been grandfathered from an AE zone to a VE Zone but had in fact always been in the VE Zone. That meant that the $4,600 premium the insured was paying was going to increase to a $26,000 premium once corrected.
The insured had asked their prior agent if an old elevation certificate would help their cause, but was informed that it wouldn’t help the rating. The insured was also unclear as to why they were moving to the NFIP’s Special Direct Facility which happens with all SRLs and is an additional factor into the rate increase.
After further investigation, the elevation certificate showed a -4 elevation, which actually reduced the $26,000 premium by half, to $12,000. Then, with coverage reductions, the insured was able to lower the premium even further to $6,000. So while the insured was unfortunately not happy that they could no longer maintain coverage for the incorrect premium of $4,600, they were thrilled to have some coverage at $6,000, all while remaining with the NFIP.
With roots on the Massachusetts coast, our team knows a thing or two about flood insurance. With RogersGray you have flood insurance options. The federal government offers flood insurance coverage through the National Flood Insurance Program (NFIP) and there are several Private Flood Insurance programs available as well.
Senior Vice President | Partner
Ryan O’Connell is a Partner and Senior Vice President at RogersGray with a focus on personal insurance, specializing in coastal property risks and complex personal insurance needs for investors and second homeowners.
Named as an Affiliate Member of the year by Cape Cod and Island Realtors Association in 2018, Ryan also volunteers with Housing Assistance Corporation and the Community Development Partnership, where he teaches first time home buyers on how to understand insurance and how to find the right insurance policy for their needs. You can connect with Ryan via LinkedIn or by email.