Lesson 1: Introduction to the NFIP Claims Review

Welcome to Lesson 1, the Introduction to the NFIP Claims Review.

Objectives: In this lesson you will review:
  • FEMA's flood registration requirements and levels of authorization
  • The adjuster's role
  • The adjuster's customer service responsibilities
  • The Flood Certification Number (FCN) and identification
  • Adjuster standards and requirements
About the Adjuster Curriculum
You should already have completed these prerequisite courses:
  • Introduction to Flood Claims (IS-1112)
  • Adjuster Customer Service (IS-1107)

NFIP Claims Review comprises four lessons. You must complete all four lessons to complete the course.

Once you complete this course, you may take additional courses in specialized knowledge areas such as Introduction to Commercial Claims (IS-1111) and Understanding Basement Coverage (IS-1109).

Lesson Objectives
We’ll now continue with the content of the first lesson. This lesson presents an Introduction to the NFIP Claims Review.
Registration Requirements
Before we get into the main part of the course, let's review a few key concepts, starting with flood registration requirements. Registration requires meeting all of the requirements listed on the application, including:
  • Attending an approved NFIP adjuster presentation
  • Meeting all the adjusting experience requirements
  • Approval of the registration application: In addition to completing the course, you must complete an application if you are not a registered adjuster already or wish to obtain an additional area of authorization.
Authorization Areas
The NFIP designates five areas of registration:
  • Residential
  • Manufactured (Mobile) Homes
  • Small Commercial
  • Large Commercial
  • Residential Condominium Building Association Policy (RCBAP)
The Adjuster's Role

As a registered adjuster, you may be asked to handle residential, manufactured (mobile) home, and small commercial claims.

You may make recommendations to insurers on the disposition of claims and share them with policyholders, but you do not have the authority to approve or deny claims. Only the NFIP Direct Servicing Agent (DSA) and the Write Your Own (WYO) companies have this authority.

The NFIP expects every adjuster handling NFIP flood losses to understand and to communicate to the policyholders that the adjuster does not have the authority to deny a claim or to commit the NFIP or the WYO company to pay a claim and that all adjustments are recommendations.

The Flood Certification Number (FCN) Identification

The FCN card identifies you as an "active" registered adjuster and specifies the types of claims you are authorized to handle.

Always carry your FCN card. This is your identification to the policyholder. If asked to present a picture ID to the policyholder, you should do so.
Adjustment Standards and Requirements - Purpose
FEMA's adjustment standards clarify its expectations of flood adjusters. Make sure to review them carefully and keep abreast of updates. Let’s review each standard and requirement.
Adjustment Standards and Requirements - Claims Adjustment
It is the adjuster's responsibility to:
  • Work with the policyholder throughout the claim process
  • Inspect and scope the damaged property
  • Apply the policy coverage, limitations, restrictions, and exclusions as is appropriate to the claim
  • Make recommendations to the insurer regarding payment or denial of the claim and request the use of experts
Adjustment Standards and Requirements - Prompt Contact

NFIP flood adjusters must contact the policyholder within 24-48 hours of the claim assignment, or as soon as reasonably possible depending on the size and scope of the storm. If you are unable to contact the policyholder by telephone, attempt contact through the agent. If that fails, use alternate methods such as email, text, or regular mail to the policyholder and agent. Include your contact information.

Find out your management's protocol for prompt contact. If you are unable to contact the policyholder, you should contact your management to seek guidance. It is imperative that you document your efforts to contact the policyholder in the Narrative Report.

Adjustment Standards and Requirements - Inspection

The adjuster is required to inspect the property promptly upon loss assignment. This is also the time to complete the Adjuster Preliminary Damage Assessment, if applicable, and the Preliminary Report and to verify reserves. If it is not possible to inspect the insured building within the required time frame, this should be explained in a Status Report advising when the loss will be inspected.

The initial inspection includes preparation of the Preliminary Report and scope of damages. The adjuster scopes the loss during the initial visit by taking measurements and photographs. The adjuster notes direct flood damage as well as non-flood-related damage.

Adjustment Standards and Requirements - Origin of Loss

The adjuster verifies that the reported claim was caused by direct physical loss by or from flood as defined in the SFIP.

The adjuster should explain in his or her narrative report the origin of loss that created the general condition of flooding, answering questions such as these:

  • Was wave action a factor?
  • Is there evidence of mudflow?
  • Was there accumulation of rainfall or snowfall?
  • Was the general condition of flooding associated with a hurricane or a spring rain?
  • What were the exterior and interior water heights?
  • What was the duration of the water in the risk before receding?
Adjustment Standards and Requirements - Proper Building Scope and Estimate
The NFIP estimate must:
  • Be broken down room by room
  • Be unit cost based, for example, cost per square foot, square yard, or linear foot. Make sure to document sales tax if applicable
  • Use accurate room descriptions, including the names of rooms, e.g., "Master Bedroom," "Living Room," or "Dining Room"
  • Include offsets in measurements
  • Show line-by-line depreciation
Adjustment Standards and Requirements – Preliminary Report

The adjuster must recommend reserves on the Preliminary Report based on the initial inspection and provide updated reserves as the claim progresses. It is the adjuster’s best approximation of the amount of damage to the covered building and personal property at the time of, and prior to, an estimate being prepared. The adjuster describes the risk, the usage of the risk, the flood zone, whether there is a basement, and whether the residence is principal or seasonal.

Once the adjuster determines there was a general and temporary condition of flooding, he or she should specify the cause of loss and flood characteristics.

Examples of cause of loss:
  • Tidal water overflow
  • Stream, river, or lake overflow
  • Accumulation of rainfall or snowmelt
Examples of flood characteristics:
  • Velocity flow
  • Low velocity flow or ponding
  • Wave action
  • Mudflow
  • Erosion
Information about the times water entered and receded from the building, the source of the water (this might pertain to subrogation, which is reviewed later in this course), how long the water remained, and the exterior and interior water heights (in inches). If reserves change during the claim process, the insurer must be notified of reserve changes. Adjusters must sign the Preliminary Report and include their FCN.
Adjustment Standards and Requirements - Preliminary Report Due Dates

The adjuster’s first report is the Preliminary Report Form. It is important to submit the Preliminary Report as soon as possible, preferably the same day as the inspection but no later than 15 calendar days after the assignment, along with perimeter photographs of the risk and photographs of the damage.

The adjuster must complete all sections in the Preliminary Report as accurately and with as much detail as possible. When a unique circumstance develops with the assignment which delays the initial inspection, the adjuster should immediately submit a narrative documenting the insurer’s claim file of the reason for the unavoidable delay. The form must be signed by the adjuster and include the active FCN.

Note: The company for which you are handling claims may request that they receive the preliminary report sooner than the 15-day deadline.

Adjustment Standards and Requirements - Manufactured (Mobile) Home/Travel Trailer Worksheet
Adjusters must complete the mobile home worksheet for every manufactured (mobile) home or travel trailer loss, including closed without payment (CWOP) claims. This worksheet is necessary to establish Actual Cash Value of the mobile home or travel trailer.
Adjustment Standards and Requirements - Personal Property/Contents Claims Adjustment
The adjuster is responsible for assisting the policyholder with preparing the contents claim, verifying that contents being claimed are insured under the SFIP, verifying accurate local replacement costs, and applying appropriate depreciation. The adjuster must include photos of the damaged contents items.
Photograph of a damaged air conditioning unit
The adjuster must provide identifying information, such as make, model, and serial number, on items such as:
  • Major building equipment, for example, furnaces and central air conditioning units
  • Major and minor appliances, for example, refrigerators, water heaters, washers, dryers, televisions, and computers
If identifying information is worn off, it is best practice to photograph the tag that held the information.
Adjustment Standards and Requirements - (Advance) Payment
FEMA encourages advance payments to policyholders whenever it is warranted. The adjuster should notify the policyholder that they may request an advance payment on their behalf, and to expect the payment through their local U.S. mail carrier or express mail service. Therefore, the adjuster must verify the mailing address. FEMA expects claims professionals to offer an advance payment to the policyholder with an eligible claim.
A pencil writing across paper.

Adjuster Tip: Adjusters should always check for new guidance on advance payments.

Adjustment Standards and Requirements
The adjuster must know all applicable terms, conditions, and exclusions of the SFIP when handling NFIP flood claims.
Adjustment Standards and Requirements - Building Replacement Cost Value (RCV), Special Loss Settlement, and Actual Cash Value (ACV)
The adjuster is to prepare accurate calculations of the policyholder's building Replacement Cost Value and Actual Cash Value and properly conclude the claim on an RCV or ACV basis as applicable.
A pencil writing across paper.

Adjuster Tip: For manufactured (mobile) homes or travel trailers, replacement cost applies if the building:

  • Is at least 16 feet wide and
  • Has an area of at least 600 square feet within its walls.
  • Is the principal residence.

If a single-family building that is a manufactured (mobile) home or travel trailer and qualifies for replacement cost is a total loss or is not economically feasible to repair, then the adjustment of the property will be the lesser of:

  • The replacement cost of the building or 1.5 times the actual value
  • The building limit of liability

Only manufactured (mobile) homes and travel trailers qualify for this type of special loss settlement. All other manufactured (mobile) homes and travel trailers require ACV loss settlement. If you determine that the building is repairable, the loss will be settled according to the replacement cost conditions as stated in the Dwelling Form and RCBAP.

Adjustment Standards and Requirements - Final Report
The NFIP Final Report is required on all NFIP DSA and WYO losses. The adjuster should not close the file until all items on the Final Report are completed.
Adjustment Standards and Requirements - Policyholder's Copy
When the claim is concluded, the adjuster furnishes the policyholder with a copy of all building and contents worksheets.
Adjustment Standards and Requirements - Proper Building Depreciation
To accurately determine ACV of an item, the adjuster must consider replacement cost, depreciation, and the average useful life of the item. The condition of the item prior to the loss must also be considered. The NFIP will not accept lump-sum depreciation figures. Depreciation is shown separately, as applicable, for each line item in the adjustment, including overhead and profit.
Adjustment Standards and Requirements - Narrative Report
It is very important for the adjuster to point out any circumstances that are unusual, suspect, or especially complicated and where additional explanation is appropriate. Only facts should be included in reports. Opinions or accusations are not to be included.
Adjustment Standards and Requirements - Prior Losses Checked
The policyholder is required to submit documentation to substantiate that prior flood damage was repaired. Those items damaged in the preceding flood loss, for which payment has been issued and which were not repaired or replaced prior to the most recent flood event, must be omitted from the current flood loss adjustment.
Adjustment Standards and Requirements - Progress Notes in File
The adjuster's file should contain adequate notes about the progress of the claim and scope of damages, calculations of Replacement Cost Value and Actual Cash Value, and a diagram of the insured building with measurements.
Adjustment Standards and Requirements - Proper Photographs

The adjuster should take as many photographs as necessary to depict the damage, including pre-existing damage. It is just as important to photograph undamaged property.

The photos must be of sufficient quality to see damage or lack of damage. Blurry, out-of-focus photographs and photos taken at night are not acceptable.

Further, the photographs must be adequately labeled, including the date the photograph was taken, the room location, and description of the damages being depicted.
Adjustment Standards and Requirements - Subrogation
The responsibility for identification of subrogation lies initially with the adjuster assigned to the flood loss and, ultimately, with the claims representative responsible for the file. On the NFIP Preliminary report the adjuster must identify the cause of loss - whether the loss was associated, for example, with the failure of a dam, pumps, a storm drain system, or other flood control measure, and whether a non-natural cause contributed to the loss. If potential subrogation is determined the adjuster should submit the Cause of Loss and Subrogation Report to the insurer.
Adjustment Standards and Requirements - Salvage

On residential and small mercantile losses, adequate salvage credit is taken when the policyholder retains possession of totally damaged items. The contents inventory must specifically denote those items that have been considered salvageable and left with the policyholder. A professional salvor must be used to handle items of significant value.

A commercial loss involving damage to a significant quantity, value, or specialized type of business contents loss may require the services of a CPA to provide a detailed report of findings. Here the role of the expert is to help promptly document and certify the quantity and value of damaged inventory, goods in process, or raw materials.
Adjustment Standards and Requirements - Proof of Loss

The adjuster may assist the policyholder in completing the Proof of Loss (POL). It is ultimately the responsibility of the policyholder to submit a Proof of Loss within 60 days of the date of loss.

There are, however, times when the Federal Insurance Administrator will extend the requirement for filing the POL within 60 days of the date of loss. Such notifications are provided in writing through Bulletins.
A pencil writing across paper.

Adjuster Tip: A fully completed NFIP proof of loss form, signed by the policyholder(s) with the required documentation, is required on every claim on which the adjuster recommends payment.

Adjustment Standards and Requirements - Underwriting Issues
It is important for adjusters to recognize underwriting issues as this could have an effect on the claim. Should you discover underwriting issues such as those listed below, it is important that you notify the insurer right away via your chain of command. Issues include, but are not limited to:
  • Improper flood zones
  • Incorrect building description or address
  • Substantial improvements
  • Two or more buildings at the described location
  • Incorrect mortgagees
Adjustment Standards and Requirements -Timely Reporting
The adjuster's NFIP Preliminary Report is due within 15 days after receipt of loss assignment. The NFIP Final Report is due 30 days later. If the claim is not concluded within 45 days, subsequent reports are due every 30 days after the Preliminary Report, unless otherwise specified by the claims examiner.
Adjustment Standards and Requirements - Judgmental and Nonjudgmental Errors

The NFIP expects the adjuster to accurately estimate the cost of replacement as well as cost of replacement or repair of like kind and quality directly affected by flood. The insurer relies heavily on the judgment of the adjuster in preparing an accurate scope and estimate and interpreting the provisions, limitations, restrictions, and exclusions of the SFIP.

There will be instances when the adjuster's recommendation differs from the opinion of the NFIP reviewer as to whether a claim payment involved an excessive or inadequate loss payment. For example, reviews may differ on the amount of depreciation taken, whether a general condition of flooding existed, whether sufficient verification of damages was obtained, etc. These are examples of judgmental errors.

When the insurer determines that the adjuster has inadvertently made an error on a claim that resulted in claims or underwriting errors, such as payment on an ineligible risk, payment of loss for identical items, payment for non-existent items, or payment for unsubstantiated items, these are considered nonjudgmental errors, which are often serious.

Adjustment Standards and Requirements - Nonjudgmental and Judgmental Error Examples

Nonjudgmental Error Examples

Examples of nonjudgmental errors include:

  • Failure to identify an ineligible building where payment is subsequently issued
  • Payment of a loss in an ineligible community
  • Exclusion of building and contents items
  • Items not properly verified

Judgmental Error Example

The policyholder submits to the adjuster that a couch is worth $3,000, but later it is discovered that the couch is worth $1,500. This is a judgmental error because although the sofa is insured under the policy, $3,000 does not reflect the proper value. Remember: Your file must reflect adequate documentation to support your judgment!

Adjustment Standards and Requirements – General Adjuster Re-inspection Requests

All re-inspection requests must come directly from the NFIP insurer or the Federal Insurance Directorate to NFIPFloodDisasterResponseMailbox@fema.dhs.gov. The re-inspection program is designed to assist in maintaining quality claims processing within the NFIP. Re-inspections are performed in cooperation with the insurers.

Adjustment Standards and Requirements – NFIP Reinspection

File Information Needed

The file information needed for reinspection includes:
  • Flood Certification Number (FCN)
  • Mentor (two signatures required)
  • Policy number
  • Prior loss history (Bulletin W-12086 discusses prior loss history)
  • Declarations page
  • Deductible and coverage amounts (found on the Declarations Page)
  • Adjuster Preliminary Damage Assessment (APDA), if applicable
  • Manufactured (Mobile) Home Worksheet, if applicable
  • Preliminary Report
  • Scope notes
  • Progress notes
  • Final Report
  • Photographs
  • Copies of estimates
  • Paperwork on additional damages
  • Elevation Certificate
  • Narrative
Adjustment Standards and Requirements - Identify and Report Possible Fraud and Policy Voidance

When claims professionals suspect wrongful acts or misrepresentations on a claim by a policyholder or their representatives:

• The adjuster should promptly submit written notification with supporting documentation to the insurer. The adjuster should not draw any conclusions regarding the suspected fraud and should only present facts in written reports

• The examiner should engage management to determine if the insurer should refer the matter to the FEMA Fraud Unit (email: StopFEMAFraud@fema.dhs.gov) and the insurer’s investigative unit for a Reservation of Rights

What's Next?

To make completing the course more convenient, it is organized into four lessons. You may complete all four lessons at once or one at a time, but for the best experience, you should take them in order. You are also expected to review adjuster resources such as WYO bulletins and the Claims Manual.

Course Lessons

  • Lesson 1: Introduction to the NFIP Claims Review. Reviews the adjuster’s role, responsibilities, standards, and requirements
  • Lesson 2: SFIP Overview & Dwelling Form Pt.1. Provides an overview of the SFIP and its three forms and reviews Dwelling Form Sections I (Agreement) through III (Property Insured)
  • Lesson 3: Dwelling Form Pt. 2, General Property, RCBAP. Reviews the Dwelling Form Sections IV (Property Not Insured) through IX (What the Law Governs) and highlights the differences between the three SFIP forms
  • Lesson 4: SFIP Audit & Adjustment Issues. Explores some common adjustment issues that might arise while handling NFIP claims and introduces some of the oversight methods that are part of FEMA’s responsibility to ensure the integrity of the NFIP
You can find additional information on these topics in the NFIP Flood Insurance Claims Handbook, Standard Flood Insurance Policy, and Claims Manual.