PROPERTY POLICIES · 6 MIN READ

Flood, Earthquake, and Residual Market Programs

Standard property forms exclude the two great catastrophe perils, flood and earthquake, so the market fills the gap with specialized programs the exam tests heavily. The National Flood Insurance Program (NFIP) is the federal flood mechanism, sold directly and through Write Your Own (WYO) private carriers, with rating modernized under Risk Rating 2.0. Its Mandatory Purchase Requirement has three concurrent triggers: a federally backed or federally regulated lender, a structure located in a Special Flood Hazard Area (Zone A or V), and a community that participates in the NFIP. New NFIP policies generally carry a 30-day waiting period before coverage begins, with limited exceptions such as loan-closing purchases. The Standard Flood Insurance Policy also includes Coverage D, Increased Cost of Compliance, paying up to $30,000 toward elevating, relocating, demolishing, or floodproofing a building the community declares substantially damaged — and that ICC money is in addition to the building limit. The substantial damage trigger itself is a 50 percent-of-value threshold, and Pre-FIRM versus Post-FIRM status historically drove subsidized versus full-risk rating. Earthquake coverage travels a parallel road. Homeowners can add an earthquake endorsement to the HO policy or buy a stand-alone earthquake policy structured like a difference-in-conditions (DIC) form that wraps around the HO-3 exclusion. Stand-alone earthquake policies share two signature provisions absent from the base HO form: a large percentage deductible, typically 10 to 25 percent of the dwelling limit, and a waiting period of roughly 30 to 60 days after inception during which claims are not covered — a defense against adverse selection after foreshocks. On the commercial side, earthquake is added by cause-of-loss endorsements to the commercial property program. DIC policies more broadly serve as catastrophe gap-fillers layered over standard personal or commercial forms, picking up flood and earthquake where the underlying policy excludes them. When the voluntary market will not write a property at all, residual market mechanisms respond. FAIR plans are state-organized pools providing basic property insurance to applicants unable to obtain coverage in the voluntary market, typically in urban or catastrophe-exposed areas. The exam expects you to recognize FAIR plans as the property residual market concept, alongside the NFIP and stand-alone catastrophe forms, rather than to know any single state's mechanics.