Hurricanes with significant flooding are devastating. They also change the landscape and character of many communities because structures with significant damage must comply with FEMA’s 50% rule, which often requires structures to be built higher and on stilts.

What is the 50% Rule? If the cost to repair a damaged building exceeds 50% of the market value of the building, the building must be brought into compliance with the National Florida Insurance Program’s current mapping requirements. The market value is for the building value and not the land value. The value is determined by the county’s property assessment or a licensed appraiser.

My experience has been that many older buildings with significant damage in a flood zone will often not be in compliance with the current flood elevation requirements and will also have damage greater than 50% of the buildings value. The property owner will then have to rebuild the structure at a higher elevation which often means demolishing the structure or raising it.

Will insurance pay for the increased cost of complying with raising the building or having a total loss? Maybe. If flood caused part of the damage, it would pay up to $30,000 under Increased Cost of Compliance coverage (ICC). If the damage was caused by windstorm and the policy has Law & Ordinance Coverage, the increased costs will be covered up to the amount of Law & Ordinance Coverage available.

Property insurance adjusters should be aware of this rule because it impacts the amount of monetary damage that the policyholder will sustain. It is not cheap to rebuild a structure at a higher elevation. Often, it cannot be done without demolishing the structure. Accordingly, adjusters need to know if the building is in compliance with the current flood zone elevation map and whether the building’s damage is greater than 50% of a properly adjusted claim.

JS Held wrote an excellent article on this subject, FEMA’s Commonly Misinterpreted ‘50% Rule’. The article correctly warns:

As floodplain management regulations continue to evolve, it is important for design professionals and insurance professionals to understand how to interpret these regulations. The substantial improvement and substantial damage definitions and requirements are arguably the most misinterpreted floodplain regulations. Many times, those involved in a project such as the design professional, contractor, or property owner are not aware of these requirements until their application for repair permitting is denied by the local building department. Knowing how to interpret and implement these requirements is critical for floodplain management compliance and for mitigating the risks to repetitive loss structures.

Since numerous areas impacted by Hurricane Ian are in flood zones, my concern is that many older buildings with significant damage will have to be built to the raised levels of current flood maps. Many charming neighborhoods may look substantially different in the future. There will also be many property owners who will lack sufficient resources to rebuild.

Thought For a Monday Afternoon

When life gives you Monday, dip it in glitter and sparkle all day.
—Ella Woodward