National Flood Insurance Program; Desktop Rating of Flood Insurance Policies

AGENCY:

Federal Emergency Management Agency (FEMA).

ACTION:

Notice of forum with request for ideas and participants.

SUMMARY:

We (FEMA) will hold a forum on the feasibility of identifying alternative methods for obtaining necessary risk and elevation information to rate flood insurance policies. The goal of the forum is to foster the development of a desktop system that supports the actuarial rating of a flood insurance policy and the floodplain management requirements of the National Flood Insurance Program. We seek a solution that makes the risk, base flood elevation and lowest floor elevation data necessary to rate a flood insurance policy available to agents at their desks.

DATES:

We will hold the forum on December 13, 2000.

Please send written responses to the ideas and questions that we pose by November 27, 2000.

ADDRESSES:

We will hold the forum in the Horizon Ballroom of the International Trade Center, Ronald Reagan Building, 1300 Pennsylvania Avenue, NW., Washington, DC 20004.

Please send written responses to Edward Pasterick at the address immediately below.

FOR FURTHER INFORMATION CONTACT:

Edward Pasterick, Federal Insurance Administration, Federal Emergency Management Agency, 500 C Street, SW., Washington DC 20472, (202) 646-3443, or (email) edward.pasterick@fema.gov.

SUPPLEMENTARY INFORMATION:

Background

The National Flood Insurance Program (NFIP) provides coverage against flood damage to property owners in communities that agree to adopt and enforce regulations designed to ensure safer future construction of buildings in high-risk flood zones. The provision of insurance, the regulation of the floodplain and the enforcement of the mandatory purchase requirements depend on three things:

• Flood risk information or certain key information about the nature and extent of the flood risk in a given area,
• Elevation of the structure, and
• Structural characteristics, such as the number of floors and occupancy type.

Flood Risk Information. The Federal Emergency Management Agency (FEMA) provides flood-zone information in the form of a Flood Insurance Study and Flood Insurance Rate Map (FIRM). The FIRM outlines the degree and extent of the flood risk in a given jurisdiction and serves as the guiding document for communities in the regulation of floodplain construction and for lenders in enforcing the mandatory purchase requirements. It also serves insurance companies and agents as the source of needed risk information for writing and rating applications for flood insurance under the NFIP. The primary flood risk characteristics shown on the FIRMs are the areas inundated by the one percent annual probability flood and the elevation relative to the mean sea level to which the floodwaters will rise. The latter is the Base Flood Elevation (BFE).

Elevation of the Structure. Individual property owners, through licensed surveyors and engineers, provide the elevation information needed to guide floodplain construction and to rate insurance applications. The elevation certificate contains this information, which shows the elevation relative to the mean sea level of the lowest floor of a structure or lowest floor elevation (LFE). The community must ensure that the LFE of a new structure built in the Special Flood Hazard Area (SFHA) after the effective date of a FIRM is at or above the BFE shown on the FIRM. The insurance agent writing an application for flood insurance on the structure must calculate the difference between the BFE and the LFE to determine the proper rate for coverage. As a condition of its participation in the NFIP the community must maintain this elevation information in its records.

Structural Characteristics. The insurance agent obtains the relevant structural characteristics from the insured. For example, the property owner can supply information about the number of floors, occupancy type, date of construction, etc. to the agent.

Several factors currently affect the ease of writing flood insurance:

• Access to flood risk information is more difficult for insurance agents than the risk information other lines of property insurance need. Since the flood zone and BFE needed for rating are on the community's FIRM, agents must maintain a paper copy of every effective FIRM for the communities in which they write policies. Locating a property on the paper copy of the FIRM has been a problem for agents from the outset of the NFIP, a problem that we have not diminished substantially over the years. Flood Zone Determination (FZD) companies and some Write Your Own (WYO) companies digitize much of the information on the FIRMs and now provide this information to some agents. However, zone information is far from universally available from the WYO companies, and agents are unwilling to pay the fee that FZD companies charge for the service. The primary clients of the FZD companies are federally regulated lenders who need the information to comply with the mandatory flood insurance purchase requirements of the National Flood Insurance Reform Act of 1994. Lenders can pass along the fee for the service to borrowers as part of a mortgage loan's closing costs. However, insurance agents cannot do the same with their customers because charging for this service would jeopardize their competitive position. Over the next year, we plan to make all effective maps available in Raster scan version through the Map Service Center. The digital files, which support the Government Printing Office's requirement for computer-to-plate printing, will be available on FEMA's website and on CD. This will greatly improve accessibility for agents and should eliminate the need to maintain paper copies of maps.
• An applicant for flood insurance may need to provide the LFE of a property in the form of an elevation certificate completed by a licensed engineer or surveyor. The cost for the certificate is usually more than $200. Certain communities, notably those participating in the NFIP's Community Rating System (CRS), provide at least some certificates from their records, but again, elevation certificates are not universally available and not readily accessible.

Objective

The reliance on data that are difficult to obtain has led the Federal Insurance Administration (FIA) and the Mitigation Directorate to pursue the feasibility of identifying alternative methods for obtaining necessary risk and elevation information to rate a flood insurance policy. We seek a solution that makes the risk and elevation data necessary to rate a flood insurance policy available to agents at their desks.

We would like to see the private sector develop solutions to this problem and are trying to identify the optimum way to promote such. This can include the acceptance of risk information for rating purposes derived through methodologies other than those that we currently use, so long as we are sure that the information will stand up to actuarial analysis and support sound floodplain management.

Our goal is to foster the development of a desktop system that supports the actuarial rating of a flood insurance policy and the floodplain management requirements of the NFIP. We have identified two possible strategies to develop a desktop rating system for flood insurance policies that we do not intend to be exclusive or preemptive. However, we welcome creative alternative approaches.

Strategy A—Continue the current approach for identifying the flood risk and rating a flood insurance policy, but develop a means to provide elevation information in a more easily accessible manner at the point of sale. The current method uses FEMA flood hazard zones, FEMA base flood elevations and the difference between a structure's lowest floor and the base flood elevation to determine risk. This strategy requires elevation information for each individual structure and a means to efficiently gather into a single, accessible database all available elevation certificates for structures in the floodplain and continually to update this database as new structure elevation information becomes available. Alternatively, this strategy would result in an efficient, cost-effective way of collecting LFE en masse.

Strategy B—Continue the current approach for identifying the flood risk and rating a flood insurance policy, but relax the requirement for elevation certificates for individual structures. Explore ways to use new mapping technologies and approaches, combined with other property data, to gather elevation data. For example, Light Detection and Ranging (LIDAR) and InterFerometric Synthetic Aperture Radar (IFSAR) can provide information on the lowest adjacent grade near a structure from which it is possible to determine the ground elevation and estimate the structure's lowest floor elevation, measured from that ground elevation.

Approach

We will hold a forum for parties interested in developing a desktop rating system for flood insurance policies. The purpose of the meeting is to exchange ideas on the best strategy to achieve our goals for a desktop rating system and to discuss alternatives for overcoming the difficulties and high cost of implementing such a system. The government does not require a desktop rating system; we are simply seeking industry input on the best strategy to develop such a system. Our vision is that the forum will attract entrepreneurial energies and disparate skills and communities of interest that were perhaps previously unaware of the difficulties associated with rating a flood insurance policy.

We will hold the forum on Wednesday, December 13 from 9:00 a.m. to 3:00 p.m in the Horizon Ballroom of the International Trade Center, Ronald Reagan Building, 1300 Pennsylvania Avenue, NW., Washington, DC 20004. We invite all interested parties to present their ideas for developing a desktop system that supports the actuarial rating of a flood insurance policy and the floodplain management requirements of the NFIP. We have several key questions that we invite the attendees to address. The list is not exhaustive and we welcome additional questions for consideration.

• What is the degree of accuracy of current building elevation information?
• What existing databases can we apply to the flood rating process?
• Is there an easy way to translate highest adjacent grade and lowest adjacent grade data into lowest floor elevation?
• How well will elevation data collected using LIDAR or similar technologies meet the needs of local floodplain managers in enforcing NFIP regulations?
• Is there a market beyond the NFIP for data that would be part of a desktop rating system?
• What technologies for collecting and disseminating data are available for application to this problem?
• What are practical alternatives for distributing a desktop rating system?

We must receive the text of your statement no later than November 27, 2000, so that we can make copies available to all participants and we may ask you to discuss portions of your statement at the forum. With your permission, we may post your statement on our website for other persons who may be interested in this challenge but who would like more information.

If you wish to participate in the Desktop Rating of Flood Insurance Policies Forum, please reply by e-mail to edward.pasterick@fema.gov. You may attend without submitting a written response. Please let us know who from your organization will attend and the questions that they will address. If you have any questions, please email or call Edward Pasterick at 202-646-3443. We look forward to your involvement in this effort and encourage your participation.