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A Multifamily Company Saves $135,000 on Annual NFIP Costs

A retail agent had an insured with a portfolio of multifamily properties. The insured was maintaining NFIP flood insurance policies on 42 buildings at 4 locations. The lender’s flood zone determinations showed that the buildings were in Special Flood Hazard Areas (SFHA: zones beginning with the letter A). The client was concerned over the high flood insurance premiums and was looking for ways to reduce them. The retail agent was looking for savings opportunities and asked us for help.

We completed a comprehensive flood risk analysis and determined that 7 buildings on two properties were not at high risk of flooding during 100-year storms. These 7 buildings had been incorrectly classified in the SFHA. We worked with FEMA to successfully remove all 7 buildings from the high-risk flood zone and to reclassify them into a low-risk flood zone, where they should have been in the first place. By leveraging our flood zone correction expertise and capabilities, we delivered five valuable benefits to the insured: (1) eliminated lender’s flood insurance requirement, (2) maximized the flood coverage afforded under the insured’s master property insurance policy, (3) delivered substantial future savings, (4) captured a large insurance refund, and (5) increased the value of the property.

In addition, through the flood risk analysis process we were able to identify more favorable rating options for buildings on two other properties. This allowed us to deliver three valuable benefits: (1) future savings by greatly reducing the annual NFIP premiums, (2) a large insurance refund, and (3) an increase to property values.

• Successfully removed 7 buildings from the SFHA;
• Reduced total annual NFIP costs by $135,191 (71%);
• Procured a $94,674 flood insurance refund;
• Increased property values by $1.9 million, based on the application of a 7% capitalization rate.

Click here to download this case study in .pdf.

Freddie Mac’s Guide Bulletin Highlights Changes to Flood Insurance Requirements for Multifamily Properties

Recently, Freddie Mac published a new Bulletin for the Multifamily Seller/Servicer Guide that addresses some flood insurance requirement changes for multifamily properties. This includes revisions to their flood insurance requirements, as well as an update on maximum deductible allowance to reflect current market conditions. Changes are effective on or after January 1, 2017 and applicable to both new loan submissions and insurance renewals for existing loans.

Changes to Flood Insurance Requirements

The Multifamily Seller/Servicer Guide updates include the requirement that all Multifamily Sellers and Servicers must meet the minimum requirements of the Federal flood insurance statutes, since many of them are regulated by Federal financial regulatory agencies. It also includes provisions for Borrower contents and business personal property, and an exemption of certain low-value, detached structures (such as sheds and carports) from the mandatory flood insurance coverage requirements. As stated in the Bulletin, the following changes to requirements for mandatory flood insurance coverage requirements are:

  • Officially cite the Federal Flood Insurance Statutes as part of our Guide to foster consistency related to mandatory purchase requirements;
  • Add coverage requirements for Borrower contents and personal property located within buildings in Special Flood Hazard Areas (SFHAs) requiring coverage;
  • Allow exemption for low-value structures meeting the definition of detached structures under the Federal Flood Insurance Statutes;
Updates on Maximum Deductible Allowance

As stated in the Bulletin, the maximum deductible allowance is updated to reflect current market conditions for blanket flood policies, and to state that when NFIP policies are used to provide part of the flood insurance coverage, the maximum deductible available under the NFIP is acceptable.

Read the full Freddie Mac Bulletin here (.pdf).

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