Managing a condominium association can be overwhelming at times, but it's the responsibility of board members to protect their community and keep their best interests.
Flood insurance is one of the most misunderstood areas in the community association industry. It can pose a big risk for board members who are not properly informed about their community's options, and that is especially true for condominium associations that must have an RCBAP or Master flood insurance policy.
When the property is located in a Special Flood Hazard Zone “SFHA” flood insurance is a critical factor for community associations to consider and it can be surprisingly expensive if their agents don’t have access to the right specialized flood programs or knowledge that should be required for this unique and misunderstood niche.
As such, a common concern among many association board members is whether or not their community has been properly insured in case flooding occurs. This article will go over everything you need to know about flood insurance so that we can help eliminate any related worries that could be keeping you awake at night.
Most board members don’t have time to worry about flood insurance; which is why many communities enlist experts like Yep Insurance with their flood insurance needs in order to provide them a seamless and fiscally responsible process to better protect themselves and their communities against flooding.
The Residential Condominium Building Association Policy or RCBAP is the acronym established by FEMA for the flood insurance policy exclusively designed for condo associations to protect their buildings against financial loss from damage due to flood disasters.
An RCBAP flood insurance policy is often required because there are government-mandated guidelines set up to establish that a geographic area will flood often enough or with high enough severity from disasters such as hurricanes, floods, etc., which can cause major damage to the community’s buildings because of their location on top of real estate near water sources and floodways.
Sounds simple right? Unfortunately, a lot can go wrong with flood insurance. The good news is, it doesn’t have to and after you read this information-packed article you’ll see why.
Before 2018 the legal interpretation wasn't very clear if condo associations were required to carry an RCBAP. Now, it's very clear because in the court case, Porter versus Beaver Dam Run, the North Carolina courts ruled that condominium associations must maintain insurance "against ALL RISKS of direct physical loss commonly insured against" by state law.
The court found that if a condo association is located in a Special Flood Hazard Area “SFHA” and flood protection is available through FEMA, then the association must purchase the proper amount of flood insurance protection or will otherwise be liable for negligence.
Later in this article when we go over flood maps and how to use them, we will cover how to look up your property or building and see if they are located near high-risk zones like rivers, streams, or lakes that could overflow during heavy storms.
We'll also discuss what it takes to rebuild after these disasters strike due to flooding damage. Understanding FEMA's different types of designations can help us prepare for future catastrophes as well as identify risks now so our property won't be vulnerable later down the line.
As we have all seen on the news, from events like Hurricane Harvey, or Hurricane Sandy, floods can cause a significant amount of damage to property and also displace people from their home, but what many homeowners and board members don't realize is that their condo association's standard hazard insurance policies or general liability policies will not cover losses related to flooding.
This means if the association has property located in the “SFHA”, the homeowner’s association must purchase flood insurance if it's available—even though it could be expensive due to how often these types of disasters happen compared to other catastrophic events that occur less frequently such as earthquakes.
Flooding occurs when there is too much water on the ground over time from heavy rainstorms or overflowing rivers caused by storms far away; this causes buildings' foundations and basements full of goods like appliances and furniture to become inundated with mud-stained water high enough to completely ruin personal property and easily compromise entire living structures requiring to be repaired or completely rebuilt.
A majority of insurance brokerages servicing the community associations are unfortunately not offering their clients the many available private flood insurance RCBAP options that are specifically designed to reduce cost and better meet the community’s unique needs and requirements relating to their flood risks.
Many people and the brokers they are relying on just don't seem to understand the complex nuances of RCBAP flood insurance. As a result, they end up with either an incorrect policy or one that is much more expensive than necessary.
The standard options that most brokers are offering typically come from FEMA through the government’s National Flood Insurance Program (NFIP) and in many cases cost significantly more than other alternatives without really adding any valuable benefits.
Why would a broker offer higher-cost options when there are lower-cost options available? Well, it’s not usually because they are trying to take advantage of the opportunity, it's almost always because they just simply don’t know better.
Condo associations should only seek assistance from a broker that specializes in flood risks that has access to several private markets in addition to the NFIP and will also be shopping the entire market, private and NFIP, each year. That broker can also confirm if there are options to reduce their premiums when their current flood policy is with the NFIP but they haven’t taken advantage of lower rates by completing elevation studies. There are also other cases when a property has a special grandfathered insurance rating or if the risk doesn’t fit the appetite of the private flood carriers.
Special attention should be given to properties that were built prior to the date the FEMA flood maps were first established. The technical term for this type of property is called a Pre-FIRM (Pre - Flood Insurance Rate Map). These types of properties can get NFIP ratings without an Elevation Certificate, which might seem like a benefit.
However, there are circumstances where getting an Elevation Certificate on this type of building might show that the property’s foundation is at or above the BFE (Base Flood Elevation) which would provide a more favorable rate than the standard Pre-FIRM rating that would be provided without an Elevation Certificate. Some private carriers will also take the positive elevation into consideration and provide a discounted premium.
Before a condo association gets too excited about going out to order an Elevation Certificates doing an elevation study with a qualified flood expert, like Yep Insurance. By using special Lidar technology they can obtain an approximation of the elevation and determine if it is likely that the property will be a good candidate before any funds are invested to order an Elevation Certificate. For condo association with numerous buildings, this step will be even more critical as the costs will compound with each elevation certificate that is ordered.
History has already proven that flood insurance is one of those big blind spots for a large percentage of the insurance industry as a whole. One of the largest mistakes most brokers make is offering the NFIP as one-size-fits-all just to round out the account.
It is also quite common to find errors in how the broker has rated the policies that can be absolutely catastrophic to the coverage amounts or cause serious discrepancies in the premium amount. Opening the door wide open for a serious E&O claim!
Unfortunately, as a board member, it may be very difficult to discover these errors where you are completely dependent on the counsel of your flood broker. In the case of the blind leading the blind, it’s very likely to stumble and your community will be much better off if they select a broker that actually specializes in flood insurance so they can avoid these types of pitfalls.
It is a tragedy to think how much money is being spent unnecessarily each year because of these gaps in knowledge. Money that could be spent on other more important needs. That’s why it’s so important to share information like this so the word can get out there and people can start getting the counsel and coverage they deserve.
With the right advisor and resources, valuable residual money can be saved and reapplied to other important areas of the budget to improve the community. Anyone would agree that a thriving community increases the value of the property and makes for a wonderful place to live. Why would anyone want to pay more for less? It just doesn’t make sense.
That’s why brokers like Yep Insurance are committed to helping and educating community association board members and managers about their RCBAP with valuable flood insurance counsel relating to both the NFIP and the large variety of private flood options available so they can have access to the best possible plan and pricing without having to compromise coverage.
Although these lower-cost plans may offer better coverage at more affordable pricing, it is important to note that they do require a sufficient amount of experience from a well-versed flood insurance broker to properly navigate the underwriting process and tailor the right coverage to fit the unique needs and requirements of a community.
The government’s flood maps determine if a property is in a high-risk flood zone such as the A zone, or V zone. You see, FEMA, the Federal Emergency Management Association, works with the Army Corps of Engineers to create maps for all the geographic areas in America.
These are updated about once a decade or so, but it’s still an imperfect system run by people who can easily make mistakes using outdated methods and technology to determine flood risk—some of the existing flood maps date back as far as 50 years ago!
Flood risk technology has improved dramatically since then, so it’s no wonder that many people who’ve experienced flood loss weren’t even aware of their risk. There are also many cases where properties that are in a flood zone, have relatively low-risk but are being rated as high-risk property.
If you look closely at the flood maps below you will see some examples from one of the largest condo associations in Sacramento California. This particular HOA had 97 buildings that were located on real estate in a high-risk flood zone. The blue shaded area is known as the AE flood zone. The map was very recently updated to remove some of those 97 buildings because of improvements on the nearby levee. You will see that that area as orange tinted diagonal lines.
This flood map is a screenshot taken from FEMA’s publicly available NFHL or National Flood Hazard Layer map which allows property owners to view whether or not their property is in the SFHA also known as the “Special Flood Hazard Area''.
Most of these maps have been digitized and are available online, but some areas still require that you download the specific FIRM panel. You can request an official flood zone determination from us for free.
As mentioned earlier, flood insurance can be tricky if you're not working with an experienced specialist who insures risks like this on a regular basis. We see hundreds of requests every week year-round. It doesn't take much for a small mistake to result in big trouble.
As the board members of a skyrise condo building in New York quickly learned, thanks to a review with our RCBAP specialists, that one little error made by a surveyor on their Elevation Certificate was inflating their premium tenfold adding up to tens of thousands of dollars in unnecessary premium. Ouch! Good thing we fixed that problem!
In another case study, we did a few years ago with the largest condo association in Sacramento, our in-depth analysis of the association’s existing RCBAP allowed us to discover numerous errors where identical buildings had different replacement values and coverage amounts. We also discovered that the condo association was paying more than $70K extra to be with the NFIP through Wright Flood vs. an approved lower-cost private carrier that we presented to the board.
In their community association letter, we read that they were discussing how they needed to raise $14K dollars for some much-needed painting and updating of community property. It was strange but in this particular case, the association chose not to switch our private alternative and stayed with the NFIP opting to pay the extra $70K.
We’re not quite sure why that happened but something tells us politics may have played a role with that particular group of association board members that year. We had numerous homeowners calling us with concerns of possible corruption which may be an indicator of potential foul play. Something which is possible with any board.
This is just one of the dozens of case studies we have that prove that flood insurance truly requires an expert, especially when it comes to condo associations.
If you’re thinking your flood insurance is too expensive and something seems wrong, you are probably right and we can help you find the solution. If you’re not on the board and something seems off, don’t hesitate to reach out. We’re always here to help.
One pain point that many condo associations seem to have in common is their expensive ever-increasing annual premiums for their RCBAP flood insurance. This year, many board members are wondering why their flood insurance costs seem to always be going up and how much pressure it's putting on the board to figure out how to budget with these rising insurance costs every year. It’s not uncommon to see premiums rise by 15% or more each year with the NFIP.
Fortunately, as we mentioned earlier there are other lower-cost programs available including ones from companies like Assurant, who can provide more comprehensive coverage at lower rates than ever before through their PRCBAP a.k.a. Private Residential Condo Association Policy.
Many association board members are choosing to work with brokers that specialize in general condo association insurance, which seems like a good idea, but they might not be aware of the ramifications when it comes to flood insurance. While many insurers offer insurance for condominiums, there are few specialists that cater to the flood insurance niche who also have the expertise and the proper resources in flood protection.
This means that most HOA boards do not know what their TRUE options are, but now you do and you can simply access all of the options through us!
With our help, you will also be able to potentially discover costly mistakes on your existing RCBAP by having one of our condo association flood insurance specialists do a complete review on your community flood insurance.
To avoid the co-insurance penalty that the NFIP imposes for being underinsured it is essential to insure all units in your condo building at full replacement value or at least up to the max of $250K per unit.
If the units are not insured at this level and a flood loss occurs there will be exposure to co-insurance penalties. The co-insurance penalty will be directly proportional to the percentage of the gap in coverage.
For example: If you have a 60 unit building that has a replacement cost value of $15M with only $12M of coverage you are only insuring for 80% and it will be assumed that you are self-insuring the other 20%.
Therefore, any losses will only be paid out at 80% of the total loss regardless of the amount. So, if you had a $10M loss then the co-insurance penalty would result in a payout of only $8M. In that case, the co-insurance penalty would be similar to carrying a $2M deductible.
Now, if that were to happen while you were on the board you would find yourself in a tough spot! You and the rest of the board are now liable for these problems and you can be sure all the angry members of the community are calling their lawyers to take action against you. Remember when we said flood insurance can be really tricky?
This is another great reason to have an expert on your side who can give you the foresight to avoid such a financially disastrous liability. After all, you signed up to help the community, not become its enemy so let’s make sure you come out to be the hero in the end.
Condo owners often worry about the potential dangers of living in such close proximity to one another. One common concern is that you don't want your neighbor's unit catching on fire while they're out running errands, but what if it burns down because there was a small electrical issue that could have been prevented with some basic maintenance?
Would the condo association's standard hazard policy cover anything inside your unit beyond the drywall? Usually, you will not have any coverage from the paint-in unless your state laws for condos say otherwise. Most unit owners would need to have invested in an HO-6 condo insurance policy to cover things like the cabinets, carpet, personal items, etc.
What happens if your condo building suffered flood damage from a severe rainstorm or hurricane and it destroyed everything in your unit? If your condo association has an RCBAP the policy will actually cover much more than a standard hazard policy.
The flood insurance will not only help rebuild the building but it will cover things like your cabinets, carpet, appliances, fixtures, etc. It will also cover the foundation whereas a hazard policy will not.
So how does all this affect how the Replacement Cost on an RCBAP is determined vs on a standard hazard policy? If more property is going to be covered on the RCBAP then clearly it would make sense that the Replacement Cost will be higher on the HOA’s master flood policy compared to their hazard policy.
The difference in Replacement Cost can easily be 25% more on the flood insurance policy than on the hazard policy because of these considerations.
Understanding the Condominium RCBAP Master Flood Insurance Policy. Assuming your HOA purchased the correct type of flood insurance coverage through an RCBAP your entire unit will be covered in the event of a flood loss.
The only thing that will not be covered is your personal contents and it is recommended that you individually buy a separate flood insurance policy to cover your contents.
Some people think that they will need contents coverage to cover their Appliances but appliances like your refrigerator or dishwasher are actually included in the property coverage so you will only need coverage for other personal items such as your couches, tv’s, computers, furniture, etc.
If you are like many condo owners who spruced up your place and added fancy flooring to your unit or any other kind of upgrade to improve the value of your unit make sure you have a good record of those improvements. Improvements and betterments can be covered from part of your content coverage policy.
There is a cap of around 10% so as we mentioned make sure you keep those receipts for your fancy exotic wood floor upgrade. Understanding the Condominium Master Hazard Fire and Wind Policy. This type of coverage is quite different from the RCBAP where the master policy covers the full replacement of the unit minus the personal contents. Each individual unit owner will need to purchase their own HO6 policy to cover appliances, cabinets, and carpet on the inside of the unit.
That individual policy will also provide options to cover things such as Loss of Use, and personal contents as well. The condominium’s master hazard policy will typically only cover from the studs-out leaving everything on the inside to the unit owner’s responsibility.
The NFIP maximum requirement for coverage on an RCBAP is a max of $250K per unit. You might be wondering what happens if your condo unit is worth more than $250K? There’s that old saying that says “Just because you can, doesn’t mean you should.” That really applies here.
If the HOA board chooses to just meet the minimum NFIP guidelines while knowing the units are worth well over $250K each they run the risk of leaving their community members with huge gaps in coverage that won’t be insured.
Through private RCBAP programs, a community can have access to full replacement coverage. If you’re reading this and you know your community has units worth more than $250K and you have a standard NFIP policy this would be the perfect time to raise a concern. Disaster plays no favorites and bad things happen to good people.
Floodwaters can easily deem an entire structure uninhabitable.
You might be thinking, “Well, I live on an upper floor that will never flood, so why do I need flood protection?”. Well, if the building foundation suffers enough damage then even though your unit didn’t get wet, you won’t be able to live in your unit until the building is rebuilt.
Where Is the Best Place To Buy A RCBAP Master Flood Insurance Policy?
There is no one-size-fits-all for RCBAP coverage. The NFIP isn’t the only option, and sometimes private flood insurance isn’t an option.
There are circumstances where a condo association may only be able to get flood insurance through the NFIP. The only way to know this is to work with an expert who has access to all the flood insurance programs designed for condo associations under one roof who truly knows how to navigate these deep and dangerous waters.
At Yep Insurance, we have seen virtually every type of scenario and have the experience to make sure your association comes out on top. We are here to help, even if a consultation is all that is needed. We don’t charge for our time.
You only pay the premium charged by the carrier. In many cases, we understand that it may be required for us to fly out to your property for an inspection to visit for a board meeting. Our team is excited to take on any challenge you may bring our way and looking forward to showing you why we are becoming the go-to for this niche type of coverage.
Your condo association is important to you, and it’s important that your board has the right flood insurance agent in place. Yep Insurance specializes in RCBAP for condos and is licensed throughout all of the United States. We are available today to answer any questions about your master flood policy or help mitigate against flood risk with a comprehensive action plan tailored just for your community. Let's get started today!