Floodplain Issues Affecting High-Rises: FEMA, NFIP, FNMA, and More . . .
When FEMA remapped buildings on the Chicago lakefront in 2021, many high-rise buildings on the North side were severely affected.
Buildings only marginally or partially in a flood zone were required by law to have special flood insurance with coverage for the full replacement value of the building. Annual policy premiums for such policies ranged from $300,000 to $1,000,000. EVERY YEAR! Condos without such insurance were suddenly barraged with complaints by owners who couldn’t sell their units due to lack of government-mandated insurance, which all government-backed insurers required (Fannie Mae, Freddie Mac, VA, and others)Private insurers usually followed suit, refusing to write mortgages for buildings affected, In addition, owners with existing mortgages were told that they must purchase special flood insurance for their unit, even if on an upper floor impervious to flood damage.
FEMA has been completely unwilling to work with condominium associations to solve their dilemma of being quoted outrageous special flood insurance premiums. As a condominium, we were given no notice, no explanation, no recourse, and no solution to a seemingly insurmountable problem: A special flood insurance policy with annual premiums of roughly $1,000,000 according to our supposedly knowledgeable insurance broker.
NFIP is the official source charged with calculating all rates to be charged, based on many data points that can be entered into their system through a web portal available to insurance providers. Apparently, there is little or no documentation to help insurance providers understand the factors that go into their risk calculation model, especially as it regards high-rise buildings. As a result, NFIP’s algorithm calculates exorbitant policy premiums for buildings that have absolutely no exposure on higher floors. This is a situation that could easily be remedied if NFIP shared only a small bit of information with high-rise buildings, but they do not.
One consulting company, National Flood Experts (NFE) in Florida, apparently stumbled upon the data points that result in NFIP’s algorithm calculating a far more reasonable insurance premium amount for high-rise buildings. Unfortunately, National Flood Experts keeps this information secret and charges an unconscionable amount to help free it’s clients from their intractable dilemma. They are, in fact, a monopoly in the truest sense.
Only after contracting National Flood Experts did we learn that our insurance premium could be reduced from $1,000,000 to only $21,000 – 50 times less! However National Flood Experts was very tight-lipped about how their service resulted in such an inconceivably massive difference in the premium. And for their minimal efforts, they extorted charged us $378,000 ($1,000 per each of our 378 units). After a conversation with our Board President, they agreed to reduce their fee to $302,400 ($800 per unit), still an outrageously high amount relative to the amount of work they did.
The Office of Information Advocate (OFIA) is responsible for making information about NFIP policy pricing available to the public. To-date they have clearly failed to communicate rating factors that can result in drastically reduced premiums for high-rise buildings. I am in contact with Jan Schakowsky to try and remedy this situation.