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Flooding: Everyone is Exposed, Few are Insured, But New Options Entice

6 ADJUSTINGTODAY.COM While the NFIP dwelling policy will pay the full cost of replacing the insured residence, all other coverage offered under the NFIP is provided strictly on an actual cash value basis, meaning that the insured receives an amount equal to the depreciated value of the property. Both ISO programs offer options for replacement cost coverage, but the insurer has the discretion of whether to offer them. • Coverage for the increased cost of construction to floodplain management standards; • Coverage for the cost to demolish a flood- damaged structure; and/or • Coverage for “contingent loss assumption,”which addresses the loss of value when demolition of an undamaged portion of a flood-damaged building is required. In addition, the ISO program includes endorsement options for standard “increased cost-ordinance or law” coverage. That coverage pays the additional costs an insured will pay after a loss to bring the undamaged part of a structure into compliance with current building codes. That coverage is not available under the NFIP; private insurers would have the discretion of whether or not to offer it. The DIC Option In commercial lines, some insurers —most notably FM Global — have come to specialize in a type of property coverage known as “difference in conditions” or “DIC.”DIC coverage is a class of inland marine insurance which is typically associated with transit risks but also includes other types of property coverage that is less regulated than standard lines of insurance. ( Adjusting Today® issue #3042 features a more extensive discussion of Difference in Conditions coverage.) For most practical purposes, DIC policies are used to add coverage for flood and earthquake to commercial property package programs. (Flood and earthquake are excluded from coverage under standard commercial property policies.) DIC polices typically have their own limits and coverage conditions, so that a flood loss does not trigger all the limits provided under a commercial property policy. The NFIP and ISO forms also differ in how they address certain remedial costs incurred after a flood loss. Both the NFIP dwelling and general property forms include coverage up to $30,000 for “increased cost of compliance (ICC).” ICC refers to the increase in restoration costs due to requirements to adhere to flood loss mitigation standards when restoring flood-damaged property. ICC coverage under an NFIP policy applies only to structures that suffer two or more NFIP-covered losses over a 10-year period or damage from a single flood that amounts to at least half of a structure’s market value. ICC coverage is actually excluded under the ISO personal flood form, but is available by endorsement. The ISO commercial flood program offers three ICC options within the base form: