Insure the building at less than 80 percent and the NFIP prorates every flood payment
Insure the building at less than 80 percent and the NFIP prorates every flood payment
2026-09-15 · North Dakota · Compliance
The commonest way a North Dakota condominium board turns a covered flood loss into a partly uninsured one is not a denial. It is a formula in Article VII of its own policy.1
The Residential Condominium Building Association Policy — the RCBAP, form F-144 — is the National Flood Insurance Program's policy for condominium associations. Its coinsurance article reads:
“VII. COINSURANCE. A. This Coinsurance Section applies only to coverage on the building. B. We will impose a penalty on loss payment unless the amount of insurance applicable to the damaged building is: 1. At least 80 percent of its replacement cost; or 2. The maximum amount of insurance available for that building under the NFIP, whichever is less.”
How the penalty is calculated
“C. If the actual amount of insurance on the building is less than the required amount … then loss payment is determined as follows…: 1. Divide the actual amount of insurance carried on the building by the required amount of insurance. 2. Multiply the amount of loss, before application of the deductible, by the figure determined in C.1 above. 3. Subtract the deductible from the figure determined in C.2 above. We will pay the amount determined in C.3 above, or the amount of insurance carried, whichever is less.”
Note what that does. The penalty is not a shortfall on large losses only. It is a ratio applied to every claim, including a small one. An association insured at 60 percent of the required amount collects three-quarters of its loss before the deductible, and that is true of a $20,000 claim as much as a $2,000,000 one.
The other number
FEMA's own guidance for condominium associations: “An RCBAP can pay up to $250,000 in building loss payments for any one unit.”2
Why associations get the 80 percent wrong
Three reasons, and all of them are quiet.
Replacement cost moves and the policy limit does not. A limit set when the building was appraised five years ago is measured today against today's replacement cost. Construction costs in North Dakota have not been flat. An association that has changed nothing has drifted below the threshold by doing nothing.
Nobody re-values. The 80 percent test needs a current replacement cost figure. Most associations have a number from an old appraisal, an insurer's estimator, or a guess that became institutional.
Inflation guard used to paper over it — and it has been retired. Freddie Mac's March 2026 bulletin put it in one line: “The inflation guard requirement has been retired in its entirety.” Fannie Mae retired the requirement too. Nothing in the secondary-market standards now obliges a policy limit to rise with construction costs. Keeping the limit current is entirely the board's job.
Where this sits in the association's wider insurance picture
Flood is separate cover. A board reviewing its property programme this autumn has three numbers to check in one sitting, and they interact:
The flood coinsurance figure. Building limit as a percentage of current replacement cost. Eighty percent is the floor, and it is a floor with a proportional penalty beneath it.
The master property policy's replacement cost basis. Fannie Mae and Freddie Mac now require the master property policy to equal “at least 100% of the estimated replacement cost value of the project improvements” — but with roofs carved out of the replacement-cost requirement.
The per-unit deductible. Since July 1, 2026 a per-unit deductible above $50,000 makes the units unfinanceable, and any per-unit deductible requires every mortgaged owner to carry an HO-6 at least that size.
Our North Dakota insurance requirements page covers the programme as a whole.
Where a North Dakota board stands
Get a current replacement cost valuation and do the arithmetic yourself. Building limit divided by replacement cost. If it is under 0.8, the penalty is already live on any claim filed today.
Put re-valuation on an annual calendar. With inflation guard gone from the secondary-market requirements, this is the only mechanism that keeps the ratio right.
Know your unit count against the $250,000 per-unit building cap. That cap, and the overall limit it produces, is what decides whether the NFIP alone can rebuild the building or whether excess flood cover is needed.
Tell owners what the RCBAP does not cover. Unit contents and, depending on the policy structure, unit improvements are the owner's problem. An owner who assumes the association's flood policy covers everything inside the unit is an owner who will be uninsured after the water goes down.
Reserve for the deductible. It comes off after the coinsurance ratio is applied, not before. Our North Dakota reserve studies and budget approval pages cover where that money should sit.
And check the renewal date
The NFIP's authority to issue and renew policies expires at 11:59 p.m. on September 30, 2026. The program already lapsed from October 1, 2025 until FEMA extended the payment grace period in November. A policy renewing in that window should be bound and paid before the deadline, not after.
What to watch next
Watch whether the retirement of inflation guard produces a wave of under-insured buildings across the upper Midwest — it is the kind of change that shows up years later, in claims. Watch also for FEMA activity on the RCBAP form itself, which has been unchanged since October 2021.
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